FORFEITURE-HOW YOU COULD LOSE YOUR LEASE
Almost every lease of a residential flat will contain what is called a forfeiture clause. This
is a provision in your lease which entitles your Landlord to enter your flat and put an end
to the lease on the happening of certain specific events. Without such a provision the
Landlord cannot bring your lease to an end before the date the lease expires unless you
have broken a condition of the lease.
What are the common situations where the Landlord can bring your lease to an end?
Obviously, not paying the ground rent and also breaking a covenant or condition of the
lease. Forfeiture can create a loss out of all proportion to the seriousness of the breach
that has occurred. It can also produce a benefit to the Landlord out of all proportion to the
loss that has been suffered. Therefore legislation was brought into effect in 1925 which
gives the Lessee protection in the following way.
First a Notice has to be served explaining to the Lessee what exactly is the complaint and
giving a proper opportunity for the Lessee to put it right and, if compensation is
necessary, to deal with that aspect as well. But, if the Lessee does not deal with the
Notice, and the case is proved, then the forfeiture clause can enable the Landlord to get
possession. Fortunately, you will not find a lease of a residential flat containing a
provision which would allow forfeiture on your bankruptcy and the reason is simply that
lenders are not willing to advance money against leases which provide for forfeiture on
bankruptcy, so no developer or Landlord would sensibly put such a provision in a lease
which would simply backfire on the property owner making the lease unsaleable. In any
event if bankruptcy was to occur the Trustee in Bankruptcy, who would take over the flat,
would pay the rent and service charges pending a sale.
If the Landlord tried to bring a lease to an end for breach of a covenant relating to internal
decorative repairs the Court has power to relieve the Tenant from liability for such repairs
and the Court looks particularly at how long the lease still has to run and whether the
repairs are really necessary for the maintenance and preservation of the structure. There
are other legislative restrictions that would also impede the Landlord in bringing a lease
to an end for this sort of breach. Without showing that repairs are directly and
immediately relevant and serious the Landlord will be on a mission to nowhere.
One particular area where a Landlord can sometimes act effectively with a forfeiture
clause is where the flat is being used for some illegal or immoral purpose exposing the
Lessee not just to forfeiture but to an action for damages. Remember also that very often
the service charges in leases are described as additional rent which again enables the
Landlord to use the forfeiture provisions to bring pressure on the Lessee.
Where the Court grants relief from forfeiture but finds that the breach about which the
Landlord has complained is justified, it is quite usual to impose terms upon the Lessee
which have to be observed as a condition of such relief. There could also be a heavy
burden of costs which means that the Lessee has to be very responsive and careful after
receiving a Notice of Breach from the Landlord.
Into this equation has now come the Commonhold and Leasehold Reform Act 2002.
Because of the way in which forfeiture clauses have sometimes been abused the
Government decided that it would be appropriate to prevent Landlords from forfeiting
leases as a result of trivial debts. The Landlord can no longer serve a Notice alleging a
breach which could lead to forfeiture unless a Leasehold Valuation Tribunal has made a
determination that a breach of covenant on condition in the Lease has occurred (unless, of
course, the Lessee has admitted the breach or a Court has determined that the breach has
occurred). If there is an arbitration clause in your lease then the Landlord cannot apply to
the LVT. The arbitration provision has to be used.
These provisions put a break on the ability of the Landlord to enforce provisions in the
lease by using forfeiture without showing to a Tribunal that the case is justified. The
Tribunal presents relatively informal and cost free procedure for the Lessee to make any
points of objection. It is worth noting that the Government is considering legislation to
produce further safeguards against abuse of the forfeiture system and will be entering into
a consultation process shortly to see what might be needed.
The new provisions on forfeiture do not come into force yet but the likelihood is that they
will come into effect early next year.