Forfeiture Elephant Traps

Some may, with good justification, take the view that the various statutory restrictions on exercising the right to forfeit long residential leases are simply designed to trip up landlords and provide lawyers with a steady income. That said, a very valuable asset, which is also someone’s home, deserves some protection from the draconian consequences of the antiquated laws forfeiture.

In Marchitelli v 15 Westgate Terrace Ltd [2020] UKUT 192 (LC), the Deputy President of the Lands Chamber of the Upper Tribunal recently had cause to revisit two of the biggest elephant traps for landlords: s. 146 of the Law of Property Act 1925, and s. 168 of the Commonhold and Leasehold Reform Act 2002.

In summary:

1. 146 provides that a right of forfeiture shall not be enforceable until the landlord has served notice on the tenant particularising the alleged breach, requiring its remedy and payment of any damages; and
2. 168 provides that a s. 146 notice may not be served until the breach relied upon has been either admitted by the tenant, or finally determined by the court, the First-tier Tribunal or arbitration.

It is worth remembering the purpose of a 146 notice is to inform the tenant of a breach to give her the opportunity to remedy the same or apply for relief from forfeiture, if it is incapable of remedy: Akici v LR Butlin Ltd [2006] 1 W.L.R.201. The notice must be clear enough to inform the tenant of what she is alleged to have done, so that she may make amends.

1. 168 was introduced because unscrupulous landlords would serve s. 146 notices in respect of, often disputed, service charge arrears on the tenant’s mortgagee. In order to protect its security, the mortgagee would, invariably, pay the arrears and charges to the landlord, and add them to the tenant’s debt, leaving the tenant out of pocket.

In Marchitelli, the tenant was undergoing treatment for cancer. A friend introduced her to an agent who arranged to sub-let her flat. The sub-tenant used the flat as a brothel. The landlord sought determination under s. 168 that the tenant had permitted or suffered the performance of illegal or immoral acts, or behaviour amounting to a nuisance or annoyance, contrary to her express covenants under the lease.

There was ample evidence, and the F-tT found, that the flat had been used as a brothel. But there was never any suggestion that either the tenant or her agent that was conducting such nefarious activities. The tenant’s breach, if any, was the permitting or suffering of such conduct, in respect of which the F-tT failed to make any express finding, either in relation to her or her agent.

In allowing the tenant’s appeal, the Deputy President observed that it was not sufficient to infer such findings from an ambiguous determination, as the landlord needed to be able to sufficiently particularise the breaches in the s. 146 notice, so the tenant was able to know what needed to be remedied or from what relief should be sought. Further, when the County Court came to deal with the claim for forfeiture, it needed clear findings from the F-tT, so it could determine whether grant possession or order relief. Absent clear findings, it would have to rehear the evidence before the F-tT, undermining the whole purpose of s. 168 determination.

The matter was, therefore, remitted to a differently constituted tribunal to determine to what degree, if any, the tenant or her agent permitted or suffered the flat being used as a brothel.

Anders v Haralambous [2013] EWHC 2676 (QB), although not cited in Marchitelli, presaged the points raised by the Deputy President. In Anders, the lease contained user and alienation covenants:

“(k)   Not to use … other than as a self-contained private dwelling for residential purposes only.”

“(m)   Not to assign, underlet or part with or share possession or occupation of part only of the premises.”

Miss Anders had connections with a language school and used the flat to accommodate students.

Proceedings were issued in the County Court for a determination of breach, pursuant to s. 168, relying on multiple occupation and subletting. A summary hearing took place, which Miss Anders did not attend. DJ Hart declared on the face of the order that:

“…the Defendant is in breach of the covenants contained at paragraphs (k) and (m) of … the lease…”

That declaration was based on the findings that:

“Miss Anders used [the flat] on a commercial basis for lodging students from the language school with which she is associated. That is not use as a private dwelling. I therefore find that there has been a breach of the covenant at (k).”

And

“Miss Anders had had lodgers in residence in various of the bedrooms in the property. This amounts to parting with or sharing possession of part of the premises. I therefore find there has been a breach of paragraph (m).”

There was no express finding of sub-letting.

A s. 146 notice was served, setting out the user and alienation covenants and citing the following breach.

“The above mentioned covenants have been broken and you have sublet the premises to students and received payments therefrom, thus operating the premises as a business as opposed to residential purposes only, as determined by the court on 15 August 2012.”

Possession proceedings were issued, relying on the 146 notice.

At first instance, the 146 notice was held to be valid. On appeal, Jay J overturned that finding and dismissed the claim. The s. 146 notice was squarely founded on subletting, which had not been determined by the DJ. Jay J acknowledged that the 146 notice also referred to operating the premises as a business, but concluded that that allegation, as worded, was inextricably linked to the allegation of sub-letting. Severing the two could not, therefore, save the notice.

Miss Anders not having been at the determination hearing, all she knew was that it had been determined that she was in breach of covenants (k) & (m). However, the alienation covenant contained divers prohibitions.

Miss Anders would not have known that the breach which had been determined (“parting with or sharing possession of part of the premises”) was not the breach relied upon in the notice: subletting. This was demonstrated by her application for relief from forfeiture founded on the irremediable breach of subletting. In fact, by the time of the hearing, she had remedied the breach which had been determined, by removing the students from the flat.

A s. 146 notice should leave the tenant in no reasonable doubt as to what must be done to either remedy the breach or to mitigate any damage caused, so as to facilitate the granting of relief from forfeiture. Although there is no requirement to tell the tenant how to remedy the breach (Fox v Jolly [1916] 1 A.C. 1), she must know what she is being asked to remedy. Keeping that in mind will go a long way to ensuring notices are good.

Similarly, there is no requirement, in a s. 146 notice, to cite the covenant which is alleged to have been breached: Van Haarlam v Kasner (1992) 64 P. & C.R. 214. However, in making a determination under s. 168, the tribunal needs to identify not only the covenant which has been breached, but also which element of that covenant and the facts upon which it has reached its decision. Failure to do so will lead to ambiguity and an invalid s. 146 notice.

Further, the practitioner needs to ensure covenant and breach are clearly recorded on the face of the court order, or in the determination, and the breach is accurately reflected in the s. 146 notice.