I am often to be found on my soap box reminding landlords (and their agents) of the importance of reading, understanding and implementing any mechanisms that set down by the Lease for the recovery of any monies due from leaseholders under that lease, and also (where there’s a prescribed form or notice) ensuring that the prescribed form is used.

In the context of ground rent demands and, in particular the ability for forfeit a lease for non-payment, the Tax and Chancery Chamber of the Upper Tribunal were called upon to examine the impact, or otherwise, of non-compliance with lease terms and failure to use the prescribed form. Additionally, the UT looked at the restriction on a landlord’s ability to forfeit. This was in the wonderfully named case of Cheerupmate 2 Limited v Calce [2017] UKUT 377 (TCC).

Statutory background

To recover ground rent, a landlord must serve notice in the form prescribed by statute. Section 166 of the Commonhold and Leasehold Reform Act 2002 restricts the obligation of a leaseholder to pay ground rent unless the correct notice has been served.

Section 166 sets out various things that should be included in the notice, but makes clear that the notice must be in the prescribed form.

The form is prescribed by the Landlord and Tenant (Notice of Rent) (England) Regulations 2004. It’s worth noting at this stage that the form of notice was amended on 26 April 2011 to remove any confusion that may have been caused by the previous double negative in the ‘notes’ section.

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 either

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

The lease in Cheerupmate 2 reserved the ground rent of £2 per year, payable half yearly on 15 March and 29 September each year.

Terms of the lease in Cheerupmate 2

The lease in Cheerupmate 2 reserved the ground rent of £2 per year, payable half yearly on 15 March and 29 September each year.

The lease authorised the landlord to forfeit for non-payment of rent once the rent had been in arrears for two years after having become due (whether any formal or legal demand had been made).

Forfeiture in Cheerupmate 2

On 12 March 2015, the landlord sent the leaseholder a notice (intended to be a Section 166 notice) in respect of unpaid ground rent from 25 March 2010 up to and including the £1 due on 25 March 2015, amounting in total to £11. The notice gave the date for payment as 20 April 2015. No payment was made.

Accordingly, on 21 April, the landlord entered the land let by the lease and secured it, saying that the lease was forfeited by a peaceable re-entry for non-payment of ground rent.

An application was subsequently made to HM Land Registry to close the leaseholder’s title on the grounds that the lease had been forfeited. The leaseholder objected to this.

Decision of the First Tier Tribunal

The FTT found that there had been no effective forfeiture for three reasons

  1. The Section 166 notice was invalid
  2. Re-entry on 21 April 2015 fell foul of the forfeiture clause in the lease which required a space of two years from the date on which the ground rent became payable
  3. The period of three years referred to by Section 167(1)(b) of the 2002 Act runs from the date specified in the Section 166 notice, and not from the date on which the ground rent is due according to the lease.

Wording of the Section 166 notice

The Section 166 notice given to the leaseholder included the old prescribed wording, rather than the current wording.

The Upper Tribunal considered whether this defect was sufficient to invalidate the notice.

The Upper Tribunal found that the Section 166 notice was invalid. The defect in the notice related to the explanatory notes for the leaseholder. These notes are an important element in the notice, and it is important for a leaseholder to understand the two limbs of the prohibition on forfeiture.

As the notice was found to be invalid, there was no obligation on the leaseholder to pay the arrears. As such, there was no right to forfeit.

Impact of the restrictions set down by the forfeiture clause in the lease

As I’ve described above, the forfeiture clause in the lease allows the landlord to forfeit for ground rent that has been in arrears for two years or more.

There was some interplay between this clause in Section 166(4) of the 2002 Act. Section 166(4) states

‘If the date on which the tenant is liable to make payment is after that on which he would have been liable to make it in accordance with the lease, any provisions of the lease relating to non-payment or late payment of rent have effect accordingly”

The Upper Tribunal found that the effect of Section 166(4) is that the landlord could not forfeit for arrears until two years after the due date set by the Section 166 notice had passed.

Limitation on forfeiture

As described above, Section 167 of the 2002 Act places a restriction on the right of the landlord to forfeit a lease unless either:

  1. The amount outstanding exceeds £350 or
  2. The ground rent has been in arrears for more than three years.

The question for the Upper Tribunal was when this period starts to ‘run’. Is it from the date of payment given in the Section 166 notice? Or is it the date on which payment became due under the terms of the lease?

Unsurprisingly, the Upper Tribunal found that the effect of Section 167 is that a landlord cannot forfeit for arrears of ground rent until three years have elapsed from the date for payment specified by the Section 166 notice served in respect of those arrears.

As such, the attempts on the part of Cheerupmate 2 to re-enter the land failed spectacularly.

Commentary

This is a reminder to landlords (and those managing on behalf of landlords) to ensure firstly that the correct (and up to date) prescribed form of notice is being used when demanding ground rent.

Secondly, it is important to have considered any clauses in the lease which restrict the ability of a landlord to forfeit a lease for non-payment of ground rent.

Thirdly, it is important to ensure the restrictions set down by Section 167 of the 2002 Act have been dealt with.

This decision has since been the subject of an appeal to the Court of Appeal, read our blog here.