The Upper Tribunal has ruled in the case of Clemente v Mindmere [2024] UKUT 50 (LC) that issuing proceedings for a money judgment for unpaid service charges does not waive the landlord's right to forfeit a residential lease.
The Facts
Mr Clemente was the long leaseholder of a flat of which Mindmere Ltd, was the landlord.
Under his lease, Mr Clemente was obliged to pay a proportion of service charge contributions, and was also obliged to pay legal costs under his lease in respect of costs incidental to breach of covenant and forfeiture.
Mr Clemente had failed to pay the service charges due under the lease and the landlord issued County Court proceedings for a money judgment against him. Mr Clemente challenged the reasonableness and payment of the service charges, and the claim was transferred to the First Tier Tribunal (Property Chamber) (FTT) for determination.
The FTT found the service charges were reasonable and therefore payable by Mr Clemente. It also considered costs in the sum of £15,563 would be reasonable and payable if demanded as an administration charge pursuant to the lease.
Mr Clemente applied for permission to appeal on the ground that in issuing County Court proceedings for payment of the service charges and seeking a money judgment, the landlord had waived its right to forfeit the lease, and therefore could not rely on the costs recovery provision of the lease to recover its costs.
The decision
The Upper Tribunal (UT) noted that waiving the right to forfeit would mean a landlord taking a course of action that recognised the lease as continuing (e.g. demanding rent that falls due after a tenant's breach of covenant).
The UT considered the following:
- The requirement under section 81 of the Housing Act 1996, that a court or tribunal determination is necessary as a prerequisite to serving a section 146 notice and forfeiture of premises let as a dwelling.
- The case of Cussens v Realreed Limited [2013] EWHC 1229 concerning breaches of user covenant concerning a flat and a determination under section 168 of the Commonhold and Leasehold Reform Act 2002 as a prelude to forfeiture. The Court of Appeal noted the landlord could obtain the determination it needed by claiming damages for breach of covenant, and such an action was not considered as a waiver of the right to forfeit.
- London Borough of Tower Hamlets v Khan [2022] EWCA Civ 831, a service charges arrears case where similar procedural steps were taken, where there was no suggestion the County Court money judgment proceedings might amount to waiver of the right to forfeit.
- The fact that Mindmere had made no demands for rent or service charges after the letter of claim was sent to Mr Clemente.
UT Judge Elizabeth Cooke therefore refused the appeal, concluding that the pursuit of a County Court money judgment for service charges did not amount to waiver of the right to forfeit for failure to pay those charges.
The decision is reassuring for landlords as it means pursuing a leaseholder for service charge arrears still leaves the landlord with the option to forfeit the lease for those charges and pursue associated costs. However, landlords need to tread carefully if they wish to retain the ability to forfeit, by putting a rent stop on the account and ceasing demanding any further ground rent and service charges, ensuring that no action is taken that recognises the continued existence of the lease.
