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Stemp v 6 Ladbroke Gardens Management Limited [2018] UKUT 375 (LC)

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26th February 2019

Summary

The Upper Tribunal determined whether a landlord had waived the right to forfeit a lease of residential property and the effect of any waiver on the landlord’s ability to recover its costs of earlier proceedings for a determination pursuant to s.27A of the Landlord and Tenant Act 1985 (“the 1985 Act”).

Facts

This case involved a claim to recover legal costs arising out of previous proceedings between the parties in the First-tier Tribunal (“FTT”). In earlier proceedings, the landlord had sought a determination pursuant to s.27A of the 1985 Act of the sums payable by the tenant in respect of a project of major works. The FTT determined that the sum demanded was payable by the tenant in full and the tenant paid the sums so determined. This application for a determination was expressly said to be made in contemplation of forfeiture of the tenant’s lease.

Thereafter, however, the landlord demanded from the tenant as an administration charge its legal costs of the s.27A proceedings. It contended that such sums were recoverable under the “section 146” clause in the tenant’s lease which stated that the tenant was to pay the landlord’s costs incurred in contemplation of proceedings under section 146 of the Law of Property Act 1925.

Issues

The tenant contended that the costs claimed were not recoverable in contemplation of forfeiture as the landlord had waived the right to forfeit the lease soon after the earlier proceedings were commenced.

First instance

The FTT found that it did not have jurisdiction to determine whether the right to forfeit had been waived. It found that the legal costs payable by the tenant by administration charge were £26,381.98, on the assumption that there had been no waiver of the right to forfeit.

Decision [on appeal]

By the time the matter reached the Upper Tribunal, the parties had agreed (and the Upper Tribunal confirmed) that the FTT did have jurisdiction to determine whether the right to forfeit the lease had been waived and that the FTT ought to have determined this point. Accordingly, the proceedings before the Upper Tribunal took place as a rehearing of the issue of whether and, if so, when the landlord had waived the right to forfeit the lease.

The tenant submitted that the right to forfeit had been waived by i) the landlord’s agents addressing the them as “leaseholders” in various communications (which were sent to all of the flats) regarding fire risk assessments and other safety issues in the block; ii) service of consultation notices relating to major works; iii) seeking access to the flat under the terms of the lease; and iv) demanding payment of on account service charges, reserved by the lease as rent.

For the landlord’s part, it was submitted that there was no such waiver. The landlord had, in the earlier FTT proceedings, made it clear that it was contemplating forfeiture of the lease. In that context, the communications set out above were no more than equivocal. Moreover, it was submitted that until the landlord had obtained a determination from the FTT as to the service charges owing, it had no right to forfeit the lease as i) such a determination was a pre-requisite to the exercise of the right to forfeiture (by s.81 of the Housing Act 1996); and ii) until a determination had been made by the FTT, the landlord did not know how much, if anything, was owed by the tenant.

The Upper Tribunal did not agree with the landlord’s submission that the right to forfeit the lease could not be waived before the landlord was in a position to exercise the right to forfeiture under s.81 of the Housing Act 1996. As regards the submission that there could be no waiver before the determination of the FTT of the sums due, this too was wrong – it is possible for the landlord, knowing the relevant facts but not the eventual decision of the court, to waive the right to re-enter.

On the facts of this case, the service of the demand for payment of the on account service charges (reserved as rent) operated as a waiver of the right to forfeit the lease (either as a matter of law or because the sum demanded was large and related to a major works intended to put the building into a long-term state of repair). However, none of the other earlier acts of alleged waiver assisted the tenant in the context of the landlord’s pleading in the earlier proceedings that it was contemplating forfeiture of the lease.

Although correspondence referred to the tenants as “leaseholders”, the fact was that they were leaseholders until such time as the lease was forfeit – this was merely a convenient phraseology for the landlord to use. As regards the consultation documents, the landlord was obliged to consult the tenant on the major works. If it did not do so, it would only have been able to recover the statutory sum of £250 from the tenant. It would be unreasonable to expect the landlord to postpone the work pending the forfeiture of the lease. Finally, whilst the landlord had sought to rely on the terms of the lease as to access, this was an equivocal act in this particular context. The outcome would perhaps have been different if the landlord had actually issued proceedings in reliance on the terms of the lease but it had not done so.

The Upper Tribunal then went on to determine the legal costs payable by the tenant until the date on which the right to forfeit was waived.

Comment

This is an important decision in that it clearly establishes that a landlord is able to waive the right to forfeit a lease even before it has obtained the ability to exercise its right to forfeit the lease under s.81 of the Housing Act 1996. Landlords and practitioners should take extreme care when proceeding down this route, as if the right to forfeit is waived, the landlord will also lose its right to recover its legal costs incurred in contemplation of forfeiture under a “s.146 clause”.

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