Forfeiture – A Cautionary Tale

By Nicola Muir

It has long been recognised that the law of forfeiture is draconian. In 2006, the Law Commission published a report proposing that the current law be abolished and replaced with a new statutory scheme which would circumvent the manifest injustices. Sixteen years later those proposals have still to trouble the statute book. However, while forfeiture may not have been abolished, in the case of long residential leases, there are now so many statutory hoops to jump through that it is highly unlikely that a leaseholder will be deprived of his lease following a breach. Unless, that is, he abandons the flat and leaves no forwarding address. This is what happened in Golding v Martin [2022] 1 W.L.R. 258.

Background

Ms Martin moved to Spain in 2003 leaving her flat unoccupied and her service charge unpaid. Mr Golding, the landlord, then trod the long and winding road which led to possession of Ms Martin’s flat only to have the whole process unravelled by the Court of Appeal in Golding v Martin [2019] EWCA Civ 446; [2019] 3 W.L.R. 138. Here follows the tale of what happened next.

The route to possession

Ultimately, if a lease is forfeited, the lease comes to an end and the landlord is entitled to possession. The lessee loses his lease, his home and his mortgagee will lose its security. But there is a convoluted and time-consuming process to go through before any forfeiture windfall comes into view. Many landlords will use the threat of forfeiture to encourage compliance with the terms of the lease but the cost and time involved in reaching the ultimate destination is usually not worth the journey.

The most common breach of the terms of the lease is a failure to pay service charges. The lease will typically include a forfeiture clause which allows the landlord to re-enter the flat and terminate the lease if the service charges are unpaid for 21 days. However, where the lease is of residential property, there are now many hurdles to jump before the right of re-entry can be exercised. It is no longer simply a question of changing the locks. The first safeguard is contained in s.2 of the Protection from Eviction Act 1977 which provides that the right of forfeiture cannot be enforced otherwise than by court proceedings while any person is lawfully residing in the premises.

Section 146 of the Law of Property Act 1925 adds that the right to forfeit will not be enforceable unless the landlord serves a warning notice on the tenant specifying the breach of covenant and requiring the tenant to remedy it. Only if the tenant fails to remedy the breach within a reasonable time will the court entertain the proceedings. A s.146 notice is not required where the breach is a failure to pay rent but, even if the service charge is reserved as rent, a s.146 notice will be required before forfeiting a residential lease: Freeholders of 69 Marina, St Leonards on Sea v Oram [2011] EWCA Civ 1258; [2012] H.L.R. 12.

A s.146 notice is a powerful weapon as it puts both the lease and any security secured on it at risk. To prevent unmeritorious notices being used as such a threat, further restrictions have been imposed by statute in the case of residential leases. Section 81 of the Housing Act 1996 provides that, where premises are let as a dwelling, the landlord cannot exercise the right of re-entry or forfeiture unless it has been determined by a court or tribunal that the service charge or administration charge claimed is determined to be payable. In the case of other breaches (other than non-payment of rent), the landlord must first obtain a determination of breach under

s.168 of the Commonhold and Leasehold Reform Act 2002. In either case, a s.146 notice cannot be served until the expiry of 14 days from the final determination (i.e. 14 days after the right to appeal has expired or any appeal has been concluded).

Even if the landlord manages to obtain the determination, await the expiry of the limbo period and serve a valid s.146 notice, that is not the end of the matter. The landlord then needs to issue possession proceedings. The tenant can then, of course, defend those proceedings and/or seek relief from forfeiture and the whole exercise may have been for nothing. Not only will the whole process have taken many months, or even years, but the landlord may not be able to recover his costs in full.

However, what if the leaseholder does not “lawfully reside” in the dwelling, does not receive the application for a determination of breach and does not respond to the s.146 notice?

What happened in Golding v Martin?

In 1986, Ms. Martin acquired the lease of a flat in a modest block of flats in Sidcup. The block and the flat fell into a semi-derelict state and Ms. Martin moved to Majorca in 2003 to take up employment as a housekeeper. Mr. Golding purchased the freehold in 2012 and carried out extensive refurbishment work to the block and (with her agreement) to Ms. Martin’s flat. Ms. Martin left her brother in charge of the flat and the last Mr. Golding heard from her was in September 2013 when she sent an email authorising a surveyor, Mr. Watson, to act on her behalf in respect of the flat.

By November 2015, there were considerable arrears of service charge and requests for payment sent to the flat and Mr. Watson went unanswered. Mr. Golding, therefore, made an application, pursuant to s.81 of the Housing Act 1996, to the First Tier Tribunal (Property Chamber) (FtT) for a determination that the service charge arrears were payable. On 23 February 2016, the FtT decided that the sum of £11,794.66 was due.

A money judgment for the claimed sum was given by the county court at Bromley on 20 April 2016 and, on 15 June 2016, Mr. Golding began proceedings for possession in the same court under CPR Part 55. The proceedings were served by postal delivery to the flat.

On 15 July 2016, the matter came before the district judge. Ms. Martin did not attend and an order simply granting possession of the flat was granted. On 23 August 2016, Mr. Golding took possession of the empty flat. He subsequently closed the leasehold title at the Land Registry and, on 17 October 2016, he granted a new lease to his daughter by way of a gift. She then sold the flat to a third party for £290,000.

Pausing there, it will be noted that the FtT proceedings were undefended. Subsequent attempts to set aside the FtT determination on the grounds that Ms. Martin had not received the application were unsuccessful so the court was bound by that determination. There was no attempt to set aside the money judgment which was, of course, also binding on the court.

Ms. Martin finally found out about the forfeiture in early December 2016 and, on 23 January 2017, she applied to set aside the order for possession on the basis that it had been obtained at a hearing that she had not attended for good reason (CPR Part 39.3(5)). Two years later, the application reached the Court of Appeal where Ms. Martin raised a wholly new ground of appeal, namely, that the possession order was defective because it was not in the form required by s.138(3) of the County Courts Act 1984. That section provides that if:

“(b) the court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture, the court shall order possession of the land to be given to the lessor at the expiration of such period, not being less than 4 weeks from the date of the order, as the court thinks fit, unless within that period the lessee pays into court or to the lessor all the rent in arrear and the costs of the action.”

The Court of Appeal agreed that the order for possession did not comply with these requirements and, on 15 March 2019, the order was set aside and the case remitted to the county court. Mr. Golding was right back where he started.

By this time, Ms. Martin had still not applied for relief from forfeiture. This application finally came in her defence and counterclaim in March 2020—three-and-a-half years after possession was taken. Ms. Martin also counterclaimed for damages for unjust enrichment on the grounds that the defective order for possession meant that the forfeiture was unlawful.

At trial in 2022, Ms. Martin’s argument was, in summary, that the effect of s.138(3) was that time had not yet started to run. Ms. Martin would, therefore, be automatically entitled to relief from forfeiture by paying the service charges within a period of at least four weeks after the making of the new (compliant) order for possession. The problem with this argument was that Mr Golding was no longer seeking an order for possession. He had taken possession more than five years earlier and the flat was now in the possession of a third party. The issue for the court boiled down to whether Mr. Golding needed a court order anyway given that no-one lived in the property.

When was the lease forfeited if at all?

It was common ground that, at all material times, no-one was residing in the flat so s.2 of the Protection from Eviction Act 1977 did not apply. Notwithstanding this, Mr. Golding had obtained a court order and it was argued on behalf of Ms. Martin that he could not say in the same case both that he recovers possession under an order of the court and that he recovers possession under a right of re-entry at common law.

Helpfully, the Court of Appeal had considered a similar scenario in the case of Gibbs v Lakeside Developments Ltd [2018] EWCA Civ 2874; [2019] L. & T.R. 15—albeit obiter. Miss Gibbs had moved abroad in 1990 leaving her flat unoccupied for most of the subsequent period. She failed to pay any service charge or rent after 2007 and the landlord issued a claim for the arrears, obtained judgment in default, then issued proceedings for possession. In the absence of a defence, possession was obtained and the landlord granted a new lease to a third party. Miss Gibbs eventually became aware of the proceedings which it transpired had been served on the wrong address. The court accepted that Miss Gibbs would have been entitled to have the order for possession set aside but went on to consider whether this would have served any purpose. Richards LJ stated, at [22]:

“There was little reference in the judgments below to the question whether simply setting aside the possession order would have assisted the appellant. Her non-payment of the rent and insurance premiums entitled the respondent, under the terms of the lease, to forfeit it and on 28 April 2010 the respondent physically re-entered the property, as it was entitled to do without the need for an order for possession. Setting aside the possession order would not reverse the forfeiture and it would remain necessary for the appellant to obtain relief against forfeiture, but whether that could still be obtained was not considered by the courts below. Issues relating to relief against forfeiture were raised by the respondent as part of its case that it was too late for the appellant to revive its claim to set aside the possession order, but it did not base its response to the unjust enrichment claim or to this appeal on grounds specific to the forfeiture of the lease. In his judgment, Lewison LJ considers this issue, concluding that setting aside the possession order would not have assisted the appellant. I agree with his judgment.”

HHJ Luba QC in Golding v Martin found that either the lease was forfeit when the proceedings were served at the flat (regardless of whether Ms. Martin actually saw them) or on 23 August 2016 when re-entry was taken. It did not matter whether Mr. Golding thought he was enforcing an order for possession or peaceably re-entering; what Mr Golding was doing was to take possession in exercise of his rights. In short, he had not needed a court order in August 2016. The learned judge also found, perhaps unsurprisingly, that Mr Golding was not obliged to pursue, and the court was not obliged to grant, an order for possession. If an order was granted, it would need to be in the form required under s.138(3) of the County Courts Act 1984 and thereby grant Ms. Martin a four-week period in which to pay her arrears. But Mr. Golding did not need

the order and Ms Martin was not in a position to deliver up possession.

This left Ms Martin with no further options. Her application for relief from forfeiture was hopelessly out of time and, as Mr. Golding’s “enrichment” flowed from his lawful exercise of his rights, he had not been “unjustly enriched”. Ms. Martin had lost her home and was not entitled to any recompense. As HHJ Luba QC concluded:

“The endnote to the final chapter … in this cautionary tale must be that a non-resident and absentee leaseholder who provides no correspondence address other than that of the property itself must either (a) make proper arrangements for forwarding or diverting the mail addressed to the premises or (b) entrust the take of ‘keeping an eye’ on their property to person who are actually committed to the task.”

A cautionary tale indeed!

First Published in the L & T Review on the 14th August 2022