Anyone involved in residential block management will know the importance of reading, understanding and implementing the terms of the lease. Indeed, I’m often to be found on my soapbox reminding landlords (and their agents) of the importance of adhering to the mechanisms set down by the lease, and (where there is a prescribed form or notice) ensuring that prescribed form is used.

Unfortunately, the Courts and Tribunals are often called upon to adjudicate in situations where the mechanisms set down by leases haven’t been followed, and/or prescribed forms haven’t been used. Often, those failures result in an inability on the part of the landlord to recover monies due (at least in the short term), or take some other action that they’d otherwise be contractually entitled to take.

The Tax and Chancery Chamber of the Upper Tribunal were called upon to examine the impact of non-compliance in the context of ground rent demands last year in Cheerupmate2 Ltd v Calce. My earlier blog deals with the Upper Tribunal’s decision.

However, being unhappy with the decision of the Upper Tribunal, the landlord appealed, and the Court of Appeal took a look at matters.

 

Statutory background

Leases often provide for the payment of ground rent by a leaseholder to their landlord.

Sections 166 and 167 of the Commonhold and Leasehold Reform Act 2002 set out various protections for leaseholders so far as ground rent is concerned.

Amongst other things, section 166 sets out the various pieces of information that should be included in a valid ground rent demand, and also make it clear that the notice must be in the form prescribed by the Landlord and Tenant (Notice of Rent) (England) Regulations 2004.

Section 167 of the 2002 Act restricts the ability of a landlord to forfeit a lease for non-payment of ground rent. Forfeiture can only happen if:

  1. The arrears exceed a prescribed amount (currently £350); or
  2. The rent has been in arrears for more than three years.

 

Facts of Cheerupmate 2

The lease in cheerupmate reserved a rent of £2 per year, payable by equal half yearly instalments on 25 March and 29 September.

The lease contained a forfeiture clause which entitled the landlord to re-enter if the rent was “in arrear for the space of two years after the same shall have become due (whether any formal or legal demand thereof shall have been made or not)”.

In March 2015, the landlord sent the leaseholder a notice (which was intended to take effect of a section 166 notice) which required the leaseholder to pay ground rent which it said was payable in respect of the period from 25 March 2010 to 25 March 2015.

Unfortunately for the landlord, the notice was in the form originally prescribed, but not in the amended form; amendments having been made to the prescribed form in April 2011.

The rent having gone unpaid, the landlord sought to re-enter the land in April 2015, on the day after which it had required the ground rent to be paid.

 

Issues on appeal

The first issue of the Court of Appeal was whether or not the notice served by the landlord was valid. Both the First Tier Tribunal and Upper Tribunal had decided against the landlord on this point.

Next on the list was the lease. The lease entitled the landlord to re-enter if the rent was “in arrear for the space of two years after the same shall have become due…”. Accordingly, was the purported forfeiture premature?

The final ground on appeal related to section 167. Section 167 precludes a landlord from forfeiting for a period of three years from the date of a valid notice under section 166.

 

Validity of notice

It was accepted by all that the notice was not in the prescribed form, but that did not answer the question as to whether or not the notice was actually invalid.

In deciding whether or not the notice was valid, the Court of Appeal took into account the following features:

  1. The discrepancy between the notice served and the prescribed form lies not in the information provided, but in the clarity of the information.
  2. The notice as served contained all of the information required by the 2002 Act itself.
  3. The form of the section 166 notice is governed by a statutory instrument, not by the Act itself.
  4. The form of the notice used was actually in force between 2004 and 2011 and must, therefore, have been regarded by Parliament at that time as sufficient to comply with the statutory requirement.
  5. The change in the wording was made not by amending the regulations, but instead by a “correction slip”.
  6. The explanatory notes (which is where the error was) were “plainly subordinate” to the purpose of the notice.

Accordingly, the combination of those features led the Court of Appeal to conclude that the notice itself was not invalid.

 

When does time start running for the purpose of the forfeiture clause?

The forfeiture clause in the lease allows the landlord to forfeit when the rent is in arrears for two years after it “shall have become due”.

But when did the rent become due?

The Court of Appeal held that, in accordance with section 166, the rent is not due until the date specified in a valid notice.

Accordingly, because of the restriction set down by the lease, the landlord was required to wait two years after the date specified for payment in the section 166 notice before the right to forfeit became exercisable.

 

Section 167 issue

Given the Court of Appeal’s decision on the second issue, it wasn’t necessary for them to move on to consider the third.

 

Commentary

This case serves as a remainder of the importance of reading, understanding, and implementing mechanisms set down by a lease.