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Repossession for Arrears of Service Charges or Ground Rent

By: Louise Smith, barrister - Updated: 27 Jul 2017 | comments*Discuss
 
Service Charges Ground Rent Repossession

In some circumstances the owner of a leasehold property could face repossession due to a failure to pay service charges or ground rent.

Service Charges

Depending on the type of property covered by a lease, service charges may be payable by the leaseholder. Usually leaseholders of flats or of property on a managed estate will have to pay service charges to the freeholder or a management company. These service charges go towards the day-to-day upkeep of the development and may also be put towards a reserve fund to cover any major and / or unplanned works that need to be done.

The lease should set out how the service charges are calculated, what they cover and when they have to be paid.

Ground Rent

Most residential leases include a provision that the leaseholder must pay ground rent to the freeholder. Ground rent is often a low, or even nominal, annual fee. The lease should set out how much has to be paid for ground rent, when it has to be paid and to whom it should be paid.

Repossession - Forfeiture of a Lease

One of the ways a freeholder may use to enforce the payment of ground rent and / or service charges is by applying for forfeiture of the lease. Forfeiture is the process by which a freeholder ends a long lease because of breaches by the leaseholder. The freeholder must follow a fairly complex legal process before a lease can be forfeited. This process gives the leaseholder the opportunity to pay the outstanding rent or service charges in order to avoid the lease being forfeited.

Where a formal demand has been made for arrears of ground rent and / or service charges and the leaseholder has been in arrears for a long time, the freeholder may be entitled to start legal proceedings for forfeiture of the lease. If a court order for forfeiture of the lease is obtained, and the leaseholder fails to satisfy the conditions within it, the freeholder will be entitled to repossess the property from the leaseholder once the period stated in the court order has expired.

Avoiding Repossession - Relief from Forfeiture

A court order for forfeiture of a lease will almost inevitably allow the leaseholder the opportunity to correct the breach of the lease that has lead to the forfeiture proceedings. Avoiding forfeiture by remedying the breach is known as relief from forfeiture. A forfeiture order based on ground rent or service charge arrears will generally give the leaseholder at least 28 days to pay the outstanding sums and avoid forfeiture.

If the debt is paid the freeholder will not be entitled to forfeit the lease. However, if the case has got as far as a court hearing, the leaseholder will almost certainly be expected to pay the freeholder’s legal costs of bringing the case.

Involvement of a Mortgage Lender

If leasehold property has a mortgage secured on it the freeholder is likely to alert the mortgage lender to the forfeiture proceedings. A mortgage lender will want to avoid forfeiture of the lease so as to protect their interest in the property.

Mortgage lenders will often pay any unpaid ground rent or service charges to prevent forfeiture taking place. However, this does not mean that the leaseholder avoids having to pay the outstanding debt. The mortgage lender will almost certainly add the service charges and ground rent to the borrower’s account as arrears. Depending on the level of this debt the mortgage lender may then start repossession proceedings of their own based on mortgage arrears – even if the borrower is completely up-to-date with their mortgage payments.

Alternatives to Forfeiture

Forfeiture is a lengthy process. For this reason many freeholders may decide to use alternative methods of enforcing a debt based on ground rent or service charges arrears. The most straightforward way of doing this is by issuing a money claim for the amount of the debt.

Most leaseholders will have no defence against a claim for arrears of service charges or ground rent. It is, therefore, likely that a county court judgment will be successfully obtained if the debt is not paid in advance. Further, when a county court judgment is made for arrears of ground rent or service charges it is unlikely that the court will allow the leaseholder to pay the debt by instalments. This is because ground rent and services charges continue to accrue and it would be unfair on other residents if the leaseholder was allowed to defer payment.

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None - Your Question:
Could you please tell me what the steps are going to court I have s freeholde house which has a outstanding service charge of £1200 which was unknown to me I now no I have to pay this I have been paying on a mounthy plan which is not in writing I am up to date with me service charge and I am paying off the arrears The service management company has now damened all the total be paid by the Ist August Or they will send a collections company around plus more charges for there service Can they do this before you go to court

Our Response:
What is the service charge for? Who omitted to tell you this at the time of purchase? Did your conveyancing solicitor not point it out? If it wasn't in any of the documentation or deeds why do you have to pay it? Sorry there is not enough information here for us to advise effectively. You should go to Cizitens' Advice or find a solicitior who might offer a first consultation for free or at a reduced rate.
HousingRepossessions - 31-Jul-17 @ 11:48 AM
Could you please tell me what the steps are going to court I have s freeholde house which has a outstanding service charge of £1200 which was unknown to me I now no I have to pay this I have been paying on a mounthy plan which is not in writing I am up to date with me service charge and I am paying off the arrears The service management company has now damened all the total be paid by the Ist August Or they will send a collections company around plus more charges for there service Can they do this before you go to court
None - 27-Jul-17 @ 4:33 PM
jim - Your Question:
GROUND RENT ISSUES - I live in a fully owned [no mortgage apartment] and pay both service charges and I am expected pay ground rent also of currently £150.00 per year in advance for which I have just received an invoice for.Current financial difficulties-the most basic income based JSA only and no savings] I am going to be unable to bee able to pay this amount certainly in the immediate future.What options are available to me and what would you best recommend.I appreciate that Lease forfeiture is not possible until a debt of £350.00 has been reached for ground rent and servicing charges combined and I am up to date with my servicing charges of approx: £84.00 per month.I am most anxious,obviously, to avoid repossesion or court action of any description and urgently would appreciate your advice.My servicing charges are set to REDUCE to £71.00 per month from the end of March so I might be able just about establish a payment plan for the ground rent over the remaining 9 months for the £150.00 from the saving off the servicing charges which would be more or less a balance.Do you think that this would be acceptable to them ? Any urgent help you can provide on this would be greatly appreciated.

Our Response:
Firstly, contact the company to which you pay the ground rent and talk to them. Your offer to pay on an instalment basis may be accepted. Try also, to see if you can find any additional financial assistance to help with the payments...the Turn 2 Us website may be of use. If neither of the above is successful, your local Citizens' Advice might be able to help.
HousingRepossessions - 4-Jan-17 @ 12:03 PM
GROUND RENT ISSUES - I live in a fully owned [no mortgage apartment] and pay both service charges and I am expected pay ground rent also of currently £150.00 per year in advance for which I have just received an invoice for.Current financial difficulties-the most basic income based JSA only and no savings] I am going to be unable to bee able to pay this amount certainly in the immediate future.What options are available to me and what would you best recommend.I appreciate that Lease forfeiture is not possible until a debt of £350.00 has been reached for ground rent and servicing charges combined and I am up to date with my servicing charges of approx: £84.00 per month.I am most anxious,obviously, to avoid repossesion or court action of any description and urgently would appreciate your advice.My servicing charges are set to REDUCE to £71.00 per month from the end of March so I might be able just about establish a payment plan for the ground rent over the remaining 9 months for the £150.00 from the saving off the servicing charges which would be more or less a balance.Do you think that this would be acceptable to them ? Any urgent help you can provide on this would be greatly appreciated.
jim - 3-Jan-17 @ 12:23 PM
none - Your Question:
I am a leaseholder of a flat. I have debts including service charge and ground rent arrears. I have an IVA for some debts but the service charge and ground rent debts are not included in it. Can the freeholder sue for my arrears or claim possesion for breach of the lease? What is the effect of the IVA? Does it protect me from action by the landlord?

Our Response:
No the IVA will probably not protect you from further action if the debts in question are not included in the IVA. You should seek help from a debt adviser. Start with the Citizens' Advice Bureau.
HousingRepossessions - 25-Aug-16 @ 11:45 AM
I am a leaseholder of a flat. I have debts including service charge and ground rent arrears. I have an IVA for some debts but the service charge and ground rent debts are not included in it. Can the freeholder sue for my arrears or claim possesion for breach of the lease? What is the effect of the IVA? Does it protect me from action by the landlord?
none - 22-Aug-16 @ 3:46 PM
katie - Your Question:
I've been searching all over the internet to find out if my leasehold flat can be repossessed if its mortgage free.I have been told by a estate agent that they cant do a repossession on a mortgage free property.I am also disabled widow and due to benefit cuts and delays I have fallen behind drastically on my insurance and ground rent payments.My landlords have ignored my financial status and refuse my offer of repayment and now have this order in place for next month.I am terrified that I'm going to be made homeless at 60 years old after working very hard all my life to pay my mortgage off. Please help.

Our Response:
The freeholder has to apply for a court order if he wants possession of the property (referred to as forfeiture action).He can only start forfeiture proceedings if: you owe £350 or more in ground rent (or a combination of ground rent, services charges/admin etc) and you have been in arrears for three years or more
The freeholder can be guilty of illegal eviction if he/she does not follow very specific legal procedures. If you pay what you owe, the legal action automatically stops. This is called relief from forfeiture. Your lease continues as before. If you can't afford to pay before the hearing, you are normally given at least four weeks to do so.There is more information on the Shelter website here
HousingRepossessions - 14-Apr-16 @ 10:38 AM
I've been searching all over the internet to find out if my leasehold flat can be repossessed if its mortgage free. I have been told by a estate agent that they cant do a repossession on a mortgage free property. I am also disabled widow and due to benefit cuts and delays I have fallen behind drastically on my insurance and ground rent payments. My landlords have ignored my financial status and refuse my offer of repayment and now have this order in place for next month. I am terrified that I'm going to be made homeless at 60 years old after working very hard all my life to pay my mortgage off. Please help.
katie - 13-Apr-16 @ 1:45 AM
@jeff. That's one for the freeholder/the courts to decide really unfortunately.
HousingRepossessions - 13-May-15 @ 12:25 PM
My freeholder has obtained a successfulcourt order to increase our ground rent from £500 to £16,000 a year. An astronomical amount. The court has also said "it is not an uncommercial rent." And we have been denied a right to appeal. Also he can back date it six years meaning that each of the eight flats must find about £12,000. Are we allowed to pay this back payment by instalments?
Jeff - 7-May-15 @ 8:45 PM
My landlord has made a second application for a warrant of possession without telling the bailiff and the court that there is a stay of execution. As a consequence the bailiff has unlawfully evicted me. I have the same letterbox as my landlord who did not give me the notice of eviction.I have an order from the court ordering my landlord to let me re enter my home but he refuses. I am homeless for two weeks and I have to live in a hotel. I would like to know if the bailiff can restore me in my home
lolo - 5-Apr-12 @ 1:37 AM
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