Repossession and the Forfeiture of Long Leases

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.

Low Cost Business Energy with Great Service

Purely Energy is a lean, efficient, energy broker who offer a range of services including low cost energy, new connections, change of tenancy and general advice on anything to do with energy and business. Take a look at Purely Energy's website.