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Repossession and the Forfeiture of Long Leases

By: Louise Smith, barrister - Updated: 7 Sep 2018 | comments*Discuss
 
Leasehold Lease Breach Forfeiture

A person who owns a leasehold property could face repossession if they breach the terms of their lease.

What's the difference between freehold and leasehold properties? When a freehold property is bought the whole property, and the land it sits on, belongs to the owner. When a leasehold property is bought the purchaser owns the right to live in the property until the lease expires.

Some leases may be for a relatively short period of time where the end of the lease can be envisaged within the lifetime of the owner. Others may be for a very long time – such as 999 years. A long residential lease should usually last for 21 years or longer. A period of at least 100 years is common on a new lease.

Breaching the Terms of a Long Lease

Leases are long and complicated documents containing countless clauses regarding the obligations of both the lessor, (usually the freeholder,) and the lessee. Many people who purchase a leasehold property do not read through the lease in detail. However, their conveyancing lawyer should go through the lease thoroughly before the purchase of a leasehold property is completed.

Terms common to many long leases are those providing for the payment of ground rent and – especially where the property is a flat or part of a managed estate – service charges. A failure to pay these charges could lead to a claim by the owner of the freehold to bring the lease to an end and, ultimately, to repossess the property.

Ending a Long Lease - Forfeiture

Forfeiture is what happens when a lessor ends a long lease because of a breach by the lessee. The effect of forfeiture is that the property subject to the lease will revert back to the freehold owner. Most leases contain a clause which allows the freeholder to forfeit the lease - or exercise a right of re-entry to the property - if the lease is breached by the lessee. Ending a lease in this way would have serious consequences for the lessee. Therefore, the freeholder must satisfy certain requirements before attempting to end a lease.

Forfeiting a Long Lease

If the breach of the lease relates to non-payment of service charges, the freeholder must first obtain a declaration that the charges are due – unless the lessee admits that they are. Such a declaration may be obtained from a country court judge or from a Leasehold Valuation Tribunal. Unless the lessee disputes the service charges it is usually a fairly straightforward procedure. If the lessee does dispute the service charges, a lengthy hearing is likely to take place so that the disputed service charges can be assessed by a court.

When a court gives a declaration they may also enter judgment for the outstanding service charges. The lessee's mortgage lender may pay the outstanding service charges at this stage to protect their interest in the property, (see below).

Once the freeholder has obtained a declaration as described they may serve the lessee with a notice under section 146 of the Law of Property Act 1925. This informs the lessee that they are in breach of their lease, describes the breach and tells the lessee what, if anything, they can do to rectify it. The lessor may then start forfeiture proceedings to end the lease - or the lessee may apply for relief from forfeiture.

Relief from Forfeiture

Whether or not the freeholder applies to forfeit the lease, the lessee may apply to the court for relief from forfeiture to avoid having the lease brought to an end. The courts have a wide power to provide relief from forfeiture and may agree to do so in a case where the lessee is able to rectify the breach and shows a willingness to keep within the terms of the lease in the future.

Service Charge Arrears and Mortgage Lenders

The freeholder often informs the lessee's mortgage lender that there are outstanding service charges and / or ground rent and that the lease may be forfeited. If the lease is forfeited the mortgage lender will be left with a large mortgage debt which is no longer secured. To protect their position the mortgage lender will often pay the outstanding charges directly to the freeholder or management company.

Lessees should not assume that this means that they are safe from eviction. If the mortgage company does pay these charges to avoid forfeiture, the amount paid is likely to turn up on the lessee's mortgage account as arrears. This means that - even if the borrower would otherwise be completely up to date with their mortgage - their lender could start a mortgage repossession case against them.

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[Add a Comment]
I need help to get possession of property. I own freehold and my leasehold tenant is not paying rent or service charge for more than three years. I read your article and would like to discuss this further. Regards,
Joy - 7-Sep-18 @ 2:15 PM
Joe - Your Question:
I live in leasehold flat, and the owner above me has stopped the freeholder putting a new roof on the block. The adjoining property has recently had a new roof fitted to her property. We now have a leak at the joint of the two properties. Upstairs are in total denial – the owner lives in hospital, and the guardians live some ware else.

Our Response:
The freeholder is likely to be responsible for arranging repairs to the building's structure, including the roof and guttering. He/She can probably take legal action to go ahead with a new roof if it's an essential repair.
HousingRepossessions - 13-Feb-18 @ 12:37 PM
I live in leasehold flat, and the owner above me has stopped the freeholder putting a new roof on the block. The adjoining property has recently had a new roof fitted to her property. We now have a leak at the joint of the two properties. Upstairs are in total denial – the owner lives in hospital, and the guardians live some ware else.
Joe - 10-Feb-18 @ 7:39 PM
Hi we have a leased property from a trust 17 years ago they gave us 75 year lease but they went into receivership 10 years ago we decided to sell the house but when we got in touch with the council who gave the head lease to th trust did not honour the trust lease to us they say it was for fifty years and we have only 33 years left this means our house is only worth £85000 instead of £500.000 the lender in trying to reposes we have a £200.00 morgage can they do this if the lease is in our name
Steve - 28-Jul-16 @ 2:51 PM
My wife and i took a mortgage out in 1986 the house is now paid for but when we had the final mortgage offer the lease said FREEHOLD but the valuer wrote 999 years and our solicitor wrote 99 years this means our lease runs out in 2032 because the 99 year lease is from 1933.Who do you think is at fault.We are accusing the building society and they are blaming our solicitor.We would be grateful for any advice PLEASE
BRI - 24-Jan-13 @ 8:01 PM
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