A freeholder has used the ‘ultimate sanction’ of forfeiture to deal with a problematic leasehold tenant who breached his lease by installing a new kitchen, bathroom and central heating system without permission.
As a result, and highly unusually, the leaseholder, Charles McCadden, lost his £600,000 home after the freeholder applied initially to the First Tier Tribunal (FTT), which found various breaches of lease, and then to Willesden County Court for a forfeiture and possession order.
Whilst it is hard not to feel somewhat sorry for Mr McCadden, it’s important to remember that if he had obeyed the FTT’s order to reverse the works, pay the freeholder’s £216.62 outstanding service charge and her £300 tribunal administration fee, he could have stopped proceedings there and then.
It is widely acknowledged that courts will usually do all they can do to help a leaseholder avoid forfeiture and though forfeiture often gets a bad press, it remains one of the few ways freeholders can enforce breaches of lease covenant.
Yet at the same time, a leaseholder has many opportunities throughout the process to either dispute the breach or put it right and thus avoid losing their home.
What exactly is forfeiture?
A lease is a contract and if the leaseholder breaches the terms of a lease or fails to pay service charges, the landlord can make an application to the court to bring the lease to an end. This is known as forfeiture or re-entry.
To proceed, the freeholder must serve the leaseholder with a valid notice under section 146 of the Law of Property Act 1925. This can only happen if the leaseholder agrees the arrears or that a breach has occurred or – as in Mr McCadden’s case – the breach or amounts due has been determined by the FTT, or a court or under a post-arbitration agreement.
The leaseholder can apply for relief from forfeiture which means having the forfeiture set aside and the lease restored.
Mr McCadden bought the lease for the upper floor flat in North London for about £518,000 in 2016. The freeholder, Dr Malik, lived in the downstairs flat.
He then began a series of home improvements, breaching a number of lease obligations in the process, including:
Dr Malik took Mr McCadden to the FTT for breach of covenant and for not paying the building insurance and management fees.
The tribunal panel then visited the property to see for itself the home improvements that had been undertaken and although unable to gain entry, concluded that work had indeed been carried out and some of the freeholder’s fixtures removed.
Mr McCadden, who said he was not aware of the tribunal hearing because he was caring for his seriously ill father in Scotland, insisted that the works he had carried out were minimal and disputed the service charges.
When the FTT ruled there had been ‘serious breaches’, and when Mr McCadden refused to pay or reverse the works, Dr Malik took him to Willesden County Court which issued a forfeiture then a possession order transferring the lease into her name. Mr McCadden did not apply for relief from forfeiture or take part in the County Court proceedings.
Sebastian O’Kelly of the charity Leasehold Knowledge Partnership told The Times newspaper: “Mr McCadden has been found to be an inconsiderate neighbour and a leaseholder with no understanding of his obligations. The sensible course would have been to reverse the works or settle up with Dr Malik for having carried them out wrongfully.
“But the loss of a £600,000 asset is out of proportion to the dispute…The key question is…what if it had been the other way around and the freeholder had been inconsiderate?”
So, is the law as it stands fair?
The Law Commission recommended the removal of forfeiture in 2006 but the government has so far done nothing in this respect.
From a freeholder’s point of view, there is no doubt that dealing with leaseholders who deliberately or accidentally breach their lease, is stressful and forfeiture is not an easy option.
It is rare for things to go as far as they did with Mr McCadden. In most cases, beginning court proceedings to forfeit the lease, acts as a lever and usually leads to a resolution being reached before any First Tier Tribunal or County Court action is taken.
If you have a leaseholder who is in breach of the terms of their lease, speak to Wards Solicitors’ specialist Business Disputes team about what to do next.