United Kingdom Upper Tribunal (Lands Chamber)

“TOGETHER ALSO by way of additional rent the costs expenses and outgoings (as the same are referred to in Clause 3 hereof and the Fourth Schedule hereto)”

The lease contains a covenant by the lessee to pay the rent reserved.

“The Lessee HEREBY COVENANTS with the Lessor to pay to the Lessor a three twelfth part of the costs and expenses outgoings and matters mentioned in the Fourth Schedule hereto within twenty one days of the account therefor being presented to him in manner following that is to say

(a)     to pay to the Lessor the annual sum of Fifty Pounds (£50) or such other annual sum as the Lessor shall consider necessary as a contribution towards the costs and expenses outgoings and matters mentioned in the Fourth Schedule hereto by equal half yearly payments in advance on the First day of April and the First day of October in every year and

(b)    to pay to the Lessor a proportion amounting to a three twelfth part of any increase in the total expenditure which shall in any one year exceed the total contribution as aforesaid to the matters set forth in the Fourth Schedule hereto during the twelve month period ending on the first day of April in every year such amount to be paid once in every year on the First day of October next after the amount thereof and the proportion thereof payable by the Lessee and the amount of such excess shall have been ascertained and notified to the Lessee by the Lessor”

The Fourth Schedule provides for the expenses in question and includes the expenses of maintaining repairing redecorating and renewing the main structure of the building and decorating the exterior of the building and insuring the building.

“PROVIDED ALWAYS and these presents are upon the expression that if the said rent hereby reserved or the maintenance contribution or any part thereof respectively shall at any time be in arrear and unpaid for 21 days after the same shall have become due (in the case of the rent whether formal or legal demand therefor shall have been made or not) or the Lessee shall at any time fail or neglect to observe any one or more of the covenants conditions or agreements herein contained and on his part to be performed and observed then and in any such case it shall be lawful for the Lessor or any person or persons duly authorised by it in that behalf into and upon the maisonette or any part thereof in the name of the whole to re-enter the maisonette and peaceably to hold and enjoy thenceforth as if these presents had not been made but without prejudice to any right of action or remedy of the Lessor in respect of any antecedent breach of any of the covenants by the Lessee hereinbefore contained.”

“That the Lessee will pay to the Lessor on demand all costs charges and expenses (including legal costs and Surveyor’s fees) which may be incurred by the Lessor or which may under the terms of the Lease or otherwise become payable by the Lessor under or in contemplation of any proceedings in respect of the maisonette under section 147 or 147 (sic) of the Law of Property Act 1925 or in preparation and service of any Notice thereunder respectively and arising out of any default on the part of the Lessee notwithstanding that forfeiture is avoided otherwise than by relief granted by the Court”

It is common ground between the appellants and the respondent that there is an obvious typographical error in this covenant and that the first reference to section 147 should in fact be a reference to section 146 and that the lease should be read and construed as though this typographical error had not been made.

“13. In light of the above, and given the fact that the Applicant is contemplating forfeiture of the Respondents Lease with regard to their failure to pay the monies demanded on the due date, the Applicant seeks a determination pursuant to Section 27A of the Landlord and Tenant Act 1985 from the Tribunal with regard to the Respondents liability to make the on-account payment demanded and the date on which such monies fell due from Respondents, with this application being submitted as the first preliminary step in the preparation and service of a notice pursuant to Section 146 of the Law of Property Act 1925.”

“….. must therefore be understood as applying only to costs incurred in proceedings for the forfeiture of a lease, or in steps taken in contemplation of such proceedings. Moreover, even where a landlord takes steps with the intention of forfeiting a lease, a clause such as cl.4(14) will only be engaged (so as to give the landlord the right to recover its costs) if a forfeiture has truly been avoided . If the tenant was not in breach, or if the right to forfeit had previously been waived by the landlord, it would not be possible to say that forfeiture had been avoided – there would never have been an opportunity to forfeit, or that opportunity would have been lost before the relevant costs were incurred . In those circumstances I do not consider that a clause such as cl.4(14) would oblige a tenant to pay the costs incurred by their landlord in taking steps preparatory to the service of a s. 146 notice.” (emphasis added)

(1) It is accepted that the respondent could not have waived the right to forfeit the appellants’ lease for non-payment of the relevant demand prior to 22 April 2016, which is the date when the right to re-enter arose as a matter of contract.

(2) It is submitted that the right to forfeit was waived as early as 26 April 2016 – and therefore before any or any significant costs could have been incurred by the respondent relevant for the purposes of clause 2(vi) because the respondent’s application to the FTT was not even made until about 29 April 2016.

(3) If that is wrong, then numerous separate subsequent acts are relied upon as amounting to waiver of the right to forfeit the lease. Mr Trompeter submits that each of them separately was sufficient to constitute a waiver, but he invites the Tribunal to consider the matter in the following way. He refers to the various separate acts of alleged waiver taking them in time sequence. He submits that the earliest such act (act A) amounted to a waiver such that the date of the waiver is the date of act A. If this is wrong he relies on the next act (act B) and contends that act B either by itself or when viewed in the light of what had happened before (namely act A) amounted to a waiver and the date of the waiver is the date of act B. If this is wrong he goes on to the next act (act C) and contends that act C either by itself or when viewed in the light of what had happened before (namely acts A and B) amounted to a waiver and that the date of the waiver is the date of act C. Et cetera.

(4) Once it is established that the respondent did, prior to the conclusion of the previous proceedings (which resulted in the FTT’s decision dated 16 December 2016), waive the right to forfeit the appellants’ lease for non-payment of the relevant demand, it then necessarily follows that the respondent is not entitled to recover under clause 2(vi) costs in the sum of £26,381.81, which was the sum awarded by the FTT on the basis that there had not at any stage been a waiver.

(5) In these circumstances the respondent would only be entitled to recover under clause 2(vi) the amount of costs which had reasonably been incurred in contemplation of the forfeiture prior to the date of the waiver of the forfeiture (whenever that may have been).

(6) However upon the evidence submitted by the respondent it is impossible to say what were the costs reasonably incurred by the respondent in contemplation of the forfeiture prior to this waiver. The respondent has therefore failed to prove its case and therefore should be awarded nothing by way of administration charge under clause 2(vi).

(1) Having regard to the statutory fetters placed upon the respondent’s ability to enforce a right of re-entry for non-payment of the relevant demand, the respondent was not at any material time capable of exercising the right to re-enter. In consequence it was not possible to waive the right to re-enter. Therefore there could not have been and was not any waiver of the right to re-enter for non-payment of the relevant demand.

(2) If the foregoing is wrong and it was possible for the respondent to waive the right to re-enter, then upon the facts of the present case the respondent made it clear from the outset (see its statement of case in support of the application to the FTT in a document dated 29 April 2016 and see also subsequent documents) that it was proceeding with litigation with a view to forfeiting the lease. Its attitude was made clear namely: the respondent intends to forfeit the lease. Viewed in this context nothing that the respondent did amounted to a waiver of the right to forfeit.

(3) Accordingly there was no waiver and the respondent remains entitled to payment by way of reasonable administration charge of the sum awarded by the FTT namely £26,381 .98.

(4) If the Tribunal finds that, contrary to the foregoing, there was a waiver at some date prior to the conclusion of the proceedings before the FTT and the payment by the appellants of the relevant demand, then it is clear that significant costs were incurred in contemplation of the forfeiture (and therefore within clause 2(vi)) prior to the date of the waiver. The respondent is entitled under clause 2(vi) to payment of such amount by way of a reasonable administration charge. In the absence of evidence as to how much of the £26,381.98 awarded by the FTT had been incurred prior to the date of the waiver (whenever that may have been) the Upper Tribunal should either adopt a broad brush approach and itself decide what proportion of the £26,381.98 was recoverable alternatively should invite the submission of further evidence from the parties so that the Upper Tribunal, having decided upon the date of the waiver, can reach a conclusion as to the amount of the reasonable administration charge incurred prior to the date of the waiver.

Statutory restrictions on the forfeiture of residential leases

12. Section 146(1) provides that:

              “A right of re-entry or forfeiture … shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice –

                             (a)      specifying the particular breach complained of;

                             (b)      if the breach is capable of remedy, requiring the lessee to remedy the breach; and

                              (c)      in any case, requiring the lessee to make compensation in money for the breach;

              and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.”

13. Section 146 does not apply to all forfeitures.  In particular section 146(11) provides that:

     “This section does not, save as otherwise mentioned, affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.”

14. Additional statutory restrictions apply to the forfeiture of leases of residential premises.  The first of these is contained in section 81 of the Housing Act 1996, and applies only to forfeiture for non-payment of service charges or administration charges.  It provides:

“81(1) A landlord may not, in relation to premises let as a dwelling, exercise a right of re-entry or forfeiture for failure by a tenant to pay a service charge or administration charge unless –

(a)     it is finally determined by (or on appeal from) a leasehold valuation tribunal or by a court, that the amount of the service charge or administration charge is payable by him, or

(b)     the tenant has admitted that it is so payable.”

Section 81(4A) makes it clear that the reference in this section to the exercise of a right of re-entry or forfeiture includes the service of a notice under section 146(1) of the 1925 Act.

15. Section 167 of the Commonhold and Leasehold Reform Act 2002 (“the 2002 Act”), restricts the right of forfeiture for failure to pay small sums for a short period as follows:

“167(1) A landlord under a long lease of a dwelling may not exercise a right of re-entry or forfeiture for failure by a tenant to pay an amount consisting of rent, service charges or administration charges (or a combination of them) unless the unpaid amount –

(a)        exceeds the prescribed sum, or

(b)        consists of or includes an amount which has been payable for more than a prescribed period.

(2)     The sum prescribed under sub-section (1)(a) must not exceed £500.

(3)     If the unpaid amount includes a default charge, it is to be treated for the purposes of sub-section (1)(a) as reduced by the amount of the charge; and for this purpose “default charge” means an administration charge payable in respect of the tenant’s failure to pay any part of the unpaid amount.”

16. Section 81 of the 1996 Act applies to forfeiture for failure to make payments of service charges or administration charges; section 167 of the 2002 Act relates additionally to forfeiture for non-payment of rent.  Further protection for residential tenants against the service of a notice under section 146 is provided by section 168 of the 2002 Act, which applies to the service of such notices for breaches of other obligations.   At the time relevant to this appeal section 168 provided as follows:

“168(1) A landlord under a long lease of a dwelling may not serve a notice under section 146(1) of the Law of Property Act 1925 (c20) (restriction on forfeiture) in respect of a breach by a tenant of a covenant or condition in the lease unless sub-section (2) is satisfied.

              (2)     This sub-section is satisfied if –

          (a)        It has been finally determined on an application under sub-section (4) that the breach has occurred;

          (b)                    The tenant has admitted the breach, or

       (c)        A court in any proceedings, or an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, has finally determined that the breach has occurred.

….

(4)      A landlord under a long lease of a dwelling may make an application to a leasehold valuation tribunal for a determination that a breach of a covenant or condition in the lease has occurred.”

17. The reference in section 168(4) to a leasehold valuation tribunal has been replaced, since 1 July 2013, with a reference to the “appropriate tribunal” which, in England, means the First-tier Tribunal (Property Chamber).
18. Section 169 contains supplementary provisions of which section 169(7) is relevant; it provides that:

“(7)   Nothing in section 168 affects the service of a notice under section 146(1) of the Law of Property Act 1925 in respect of the failure to pay –

                                      i.       a service charge (within the meaning of section 18(1) of the 1985 Act), or

                                     ii.      an administration charge (within the meaning of Part 1 of Schedule 11 to this Act).

Acts relied upon as waiving the forfeiture

(1) On 26 April 2016 the respondent’s agents (D & S Property Management) sent an email to the appellants in response to a communication from them complaining about leaks. The email was addressed “Dear Leaseholders” and stated that the appellants’ email had been referred to the directors of the respondent whose position remained as previously stated. Attention is drawn by Mr Trompeter to the use of the expression “leaseholders”.

(2) On 16 June 2016 the respondent’s agents sent an email to the appellants again referring to them as “Dear Leaseholders”.

(3) On 17 June 2016 the respondent’s agents wrote to the appellants again referring to them as “Dear Leaseholders” and stating why fire extinguishers had been removed and referring to the advice of fire risk assessors. The appellants were asked to confirm that, if they would like new fire extinguishers, they would pay their relevant contributions and would be prepared to act as fire marshals.

(4) On 5 July 2016 the respondent’s agents wrote once again “Dear Leaseholders” to the appellants enclosing a copy of the fire risk assessment and stating that some works required to the communal parts, which fell within the respondent’s repairing covenant, were contained within the consultation documents and would be undertaken and charged for through the service charge. The letter pointed out that some of the required works did not fall within the landlord’s repairing covenant and the letter continued:

“It is stated in the report that all of the flat doors which are in the communal parts need to be replaced with fire doors. As you will be aware from your leases the said doors fall within the leaseholders’ demise and are the leaseholders responsibility.

Please confirm when you will be replacing your flat door and provide us with the certificate confirming the replacement door is compliant with the current fire regulations and are resistant to 30 minutes, with said replacement to be undertaken within 21 days of the date of this email making the compliance date by the 26 July 2016.”

(5) By documents dated 5 July 2016 the respondent’s agents served upon all leaseholders in the building a formal notice of intention to carry out works by way of consultation under the provisions of the Landlord and Tenant Act 1985. The notice was stated to be given by the duly authorised agent of “your Landlord”.

(6) On 11 July 2016 the respondent’s agents sent a further email to the appellants regarding the doors which included the passage: “For the avoidance of all doubt leaseholders were sent the same email as everyone in the building is treated the same by the company”. On 13 July 2016 the respondent’s agents sent an email to the appellants by way of further communication regarding the doors. The email contained the following passages:

“In light of the above we are of the opinion that the door either forms part of the demise or constitutes a fixture and fitting within the demise and thus in accordance with clause 2(v) of the Lease you are obliged to maintain the same. By virtue of Clause 2(xiii) the leaseholders are obliged to undertaken (sic) all required repairs within 3 months of receipt of the notice of wants of repair unless in the case of emergency. In the light of the fact that Fire Safety Enforcement Notice expires on 01/08/16 the Company is of the opinion that this constitutes an emergency.”

(7) On 27 July 2016 the respondent’s agents wrote to the appellants as “leaseholders” in relation to the fire risk assessment for the building.

(8) On 8 August 2016 the respondent’s agents sent to the appellants’ solicitors an email reciting clause 2(xiii) of the lease and stating that the email was “the Landlords request for access to your clients flat for the purposes set out in the clause above on 16/08/16 at 10 AM”.

(9) On 17 August 2016 the respondent’s solicitors sent an email to the appellants’ solicitors making a second request pursuant to clause 2(xiii) of the lease for access to the appellants’ flat.

(10) On 23 August 2016 the respondent’s solicitors sent to the appellants a statement of estimates in relation to the proposed works. The document is addressed to all leaseholders in the building and contains a response to the observations made by the leaseholders of the third and fourth floor flat (i.e. to the observations of the appellants).

(11) On 3 September 2016 the respondent’s agents sent to the appellants a request for payment by way of maintenance charge demand. The document demanded £18,971 .72 by way of half yearly three twelfths contribution towards the estimated expenditure for the maintenance charge year 1 April 2016 to 31 March 2017 as set out in an attached budget. The notice set out the provisions of clause 3(a) of the lease and stated that payment was due on 1 October 2016.

Acts relied upon as pointing away from waiver

(1) Mr Sandham drew attention to paragraph 13 of the respondent’s statement of case attached to its application to the FTT dated 29 April 2016 (see paragraph 15 above).

(2) on 3 May 2016 the respondent’s agents sent an email to the appellants referring to the fact that the service charge remained outstanding and that the respondent was contemplating forfeiture proceedings and that an application had been submitted to the FTT.

(3) On 12 May 2016 the respondent’s agents wrote to the appellants’ solicitors referring to a transfer of a sum of £1447.64 to the respondent’s account. The letter stated that as the respondent intended to seek forfeiture of the appellants’ lease for failure to pay the on account service charges due on 1 April 2016 and the payment made did not represent those monies, a cheque for £1447.64 was sent (i.e. by way of repayment of the money which had been transferred).

(4) As regards any acts by the respondent or its agents directed towards fire precautions it was necessary to view these acts in the light of the steps that have been taken by the relevant fire authority in February 2016 (see the document at tab 79 at page 1143 of the bundle).

Appellants’ submissions

(1) be referable to steps taken in contemplation of forfeiture for non-payment of the relevant demand; and

(2) be incurred before waiver of such right to forfeiture.

Respondent’s submissions

Discussion

(1) Emails. The total included for emails was £7425. If one stops at 2 September 2016 and does not include any emails on or after 3 September 2016 then the amount of costs incurred is £4025.

(2) Telephone attendances. Taking these attendances up to and including that on 22 August 2016 (there was nothing thereafter until 16 September 2016) the amount of costs incurred is £800.

(3) Letters. For letters prior to 3 September 2016 the amount of costs incurred is £550.

(4) Attendance on documents. For this category prior to 3 September 2016 the amount of costs incurred is £10,475.

(5) Personal attendances. For this category prior to 3 September 2016 the amount of costs incurred is £250.

(6) Disbursements. For this category prior to 3 September 2016 the amount of costs incurred is £1844.96.

Disposal

(1) The FTT did have jurisdiction to decide whether or not the right to forfeit for non-payment of the relevant demand had been waived and if so when it was waived.

(2) The respondent did waive the right to forfeit for non-payment of the relevant demand. This waiver occurred on 3 September 2016.

(3) The respondent is entitled to recover by way of reasonable administration charge the amount of costs incurred in contemplation of the forfeiture prior to 3 September 2016.

(4) The amount of this reasonable administration charge is £10,766.

                                                            His Honour Judge Huskinson

                                                            5 December 2018