Practical advice on forfeiture

An article on forfeiture giving practical advice on:

• Correct service of proceedings
• How to remedy defective service
• Resisting tenant’s set aside applications (based on non-attendance at hearing)
• Forfeiting for service charge arrears and the possible effect of Freeholders of 69 Marina v Oram
• Practical advice for those acting for lessees

London buses, service and forfeiture

The tail-end of 2015 threw up one of those London bus-type quirks where in less than a fortnight I acted for a landlord, a lessee and a mortgagee in three cases concerning, at least in part, the issues of (a) service of forfeiture proceedings, and (b) the defendant’s non-attendance at the first hearing at which a possession order was made.  Here’s what I learned:

1. If you are going to forfeit a lease, make no mistakes as both Judge and tenant will exploit them ruthlessly. 

2.  The usual reasons for not paying rent or service charges are either (a) a dispute about how much is owed, or (b) an inability to pay.  But in such cases the tenant is usually around to make their point.  If nothing is heard from the tenant, beware…

Service

3.  Study the rules on service carefully.  CPR 6.9 provides that where an individual has not given an address for service (check the lease for an express contractual provision as to service) they must be served at their ‘usual or last known residence’:

3.1  Whilst that sounds easy, experience suggests many struggle with it.  It is not merely a question of belief but, rather, actual knowledge.  Can you / your client confidently say that the tenant resides (or used to) at a particular address?  What evidence do you have? 

3.2 The leading case on ‘residence’, Relfo Ltd (in liquidation) v Varsani [2009] EWHC 2297, tells us that the critical test is the defendant’s ‘pattern of life’.  One can have more than one ‘residence’ and you do not have to spend much time there for it to count (as Varsani demonstrates). 

3.3  If you or your client have any reason to believe that the defendant no longer resides at the address, you ‘must take reasonable steps to ascertain the address of the defendant’s current residence’ (CPR 6.9(3)).  Arguably a complete lack of response to demands and letters before action served at the property coupled with an absence of other information indicating the tenant’s presence, gives reason to believe that the defendant no longer resides at the address.  People do not usually ignore the threatened loss of a valuable asset such as a flat.

3.4  If you can show that you have unsuccessfully taken ‘reasonable steps’ to ascertain the defendant’s current residence and cannot ascertain an alternative place or method by which to serve, you can serve on the defendant’s usual or last known residence notwithstanding any knowledge that they are no longer there (CPR 6.9(6)).

3.5  The fact that the address is recorded on the property’s HM Land Registry title is not good enough – such an address is for contact / correspondence and not service. However, such an address might be used for a service at an alternative place application pursuant to CPR 6.15.

3.6  Obviously, if the defendant has never resided somewhere, that somewhere cannot be their ‘last known residence’.

4.  If you have any doubts, the cost and trouble of a CPR 6.15 application for service by an alternative method or at an alternative place will pale into insignificance compared to dealing with a non-service-based set-aside application. 

Remedying defective service

5.  If it looks as though the defendant has a good non-service argument, turn to CPR 3.10 (an error of procedure does not invalidate any step in the proceedings unless the Court so orders) and CPR 6.15 (permission to serve by an alternative method or at an alternative place) and consider making a retrospective application (which, in effect, validates a failure to serve correctly).  Can it be shown that the proceedings came to the defendant’s attention or that the defendant’s predicament was of their own making (by, for example, moving without giving the landlord a new address)?

Set aside applications

6. If service was valid, the landlord’s next difficulty is resisting the tenant’s non-attendance based set aside application made pursuant to CPR 3.1(2)(m).   The three leading cases are Forcelux Ltd v Binnie [2009] EWCA Civ 854, LB Hackney v Findlay [2011] EWCA Civ 8 and Grimason v Cates [2013] EWHC 2304 (QB).  Forcelux and Findlay are Court of Appeal and Grimason is High Court. 

7. Forcelux and Grimason are both long lease matters whereas Findlay concerned a secure tenancy.  But Grimason followed the Court of Appeal’s reasoning in Findlay that the Court should apply CPR 39.3(5) and CPR 3.9 by analogy with the stricter provisions of CPR 39.3(5) taking precedence (in Forcelux only the more easily satisfied CPR 3.9 was applied by analogy).  This causes some confusion:  why did the long lease High Court matter follow the secure tenancy Court of Appeal approach?  The answer most usually and rather glibly given is that Forcelux concerned unusual and compelling circumstances. 

8. It was evident from my recent experiences, however, that most lawyers acting for tenants see the key unusual and compelling circumstance to be the loss of a valuable asset (i.e. the flat) for non-payment of a small sum (i.e. the arrears).  But this does not explain why Grimason (long lease, remember) followed Findlay (secure tenancy).  Perhaps the key circumstance in Forcelux was that the tenant was still within time to apply for relief and had very good prospects of succeeding – arguably the tenant succeeded in Forcelux because the Court treated the set aside application as being made consequential on the within-time and successful application for relief pursuant to Section 138 County Courts Act 1984.

9.  If this is correct, the timing of a relief application is crucial.  Section 138(9A) (for rent arrears) gives 6 months from recovery of possession whilst Section 146(2) Law of Property Act 1925 (non-rent arrears breaches) requires an application prior to the physical recovery of possession (as explained in Billson v Residential Apartments Ltd [1992] AC 494). 

Forfeiting for service charge arrears

10.  What if forfeiting for service charge arrears where the service charge is, as is common, reserved as rent?  Those not keeping up to speed with developments in this area might turn to Section 138(9A) (think Escalus Properties Ltd v Robinson [1996] QB 231).  However, landlords who have retaken possession will want to argue that the tenant is out of time as any relief application is made pursuant to Section 146(2) – it having been held in Freeholders of 69 Marina v Oram [2011] EWCA Civ 1258 and Barrett v Robinson [2014] UKUT 322 (LC) that a Section 146 notice has to be served even where a lease charge is reserved as rent.  If this and Grimason are correct, there will, in Section 146 matters, be much less risk in landlords selling forfeited properties as soon as they have retaken possession and not waiting 6 months as is often the practice.

If acting for a lessee…

11. If acting for a lessee:

11.1  Establish (whether by agreement, undertaking or injunction application – probably best made to a Circuit Judge to avoid arguments as to whether District Judges have jurisdiction) that the landlord will not deal with the property pending resolution of the matter.  A third party’s acquisition of an interest in the property (other than under, say, a licence or an assured shorthold tenancy) may prejudice the tenant’s set aside application.

11.2  If the landlord has re-taken possession, check with HM Land Registry whether an application to close title has been made.  In one of my cases the landlord applied immediately upon my tenant client first making contact about why they could not gain access and then sought to avoid / ignore my solicitor’s ‘no dealing’ request in the hope of being able to close title and sell the flat.  In another case, my landlord client had the title closed and property sold within weeks of retaking possession.

11.3 Consider the time limits and, if appropriate, make any relief application immediately.  In any event, do not delay.

11.4  Apply to set aside all Judgments where non-service may have occurred (i.e. prior money judgments that did not found the basis for the possession order – it is not uncommon for landlords to obtain a number of money judgments before seeking to forfeit).