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.