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First appeared in Informer: Real Estate Newsletter - Spring/Summer 2014
In the current market forfeiture has re-emerged as a remedy of choice for landlords seeking to regain possession of premises occupied by defaulting tenants or those of weak covenant strength. Used correctly, forfeiture is a powerful and effective remedy at the landlord's disposal.
However, in order to forfeit a lease for breaches of a lease (other than for rent arrears) a landlord is first required to serve a notice pursuant to section 146 of the Law of Property Act 1925 as a precursor. The key purpose of a section 146 notice is to enable a tenant to understand what he or she needs to do to remedy alleged breaches. The notice must specify the exact breaches of covenant that are relied on and set out the landlord's requirements for the tenant to remedy those breaches.
The recent High Court appeal in Anders v Haralambous [2013] EWHC 2676 (QB) highlights the pitfalls of not getting the notice absolutely right. In this case, the tenant had allowed a number of students at the language school where she worked to stay in her property. The tenant's lease prohibited her from (i) using the premises for any purpose whatsoever other than as a self-contained private dwelling for residential purposes; and (ii) assigning, underletting, parting with or sharing possession or occupation of part only of the premises.
As the premises were residential, the landlord was first required to obtain a determination from the court confirming that there had been a breach before it could serve a section 146 notice. The determination provided by the court confirmed that the tenant had unlawfully parted with and shared possession of part of the premises.
However, when the landlord served the 146 notice upon the tenant, it specified a breach of the covenant to sublet. This was not the breach that had been determined by the court, as there had been no express finding of subletting.
On account of the lack of clarity in the landlord's notice the court concluded that the section 146 notice was invalid and the landlord's claim for possession was dismissed. When reaching this decision the court considered whether the tenant would have been able to ascertain precisely what she was required to remedy. Whilst breaches of covenants prohibiting the sharing or parting with possession were capable of remedy, sub-letting was not.
Whilst the court was reluctant to determine the claim in this way, the case does emphasise the importance of ensuring the notice precisely specifies the breach(es) and leaves no doubt in the tenant's mind.
Landlords should therefore ensure that they take legal and professional advice in connection with breaches of covenant at an early stage in order to eliminate the risk of any notice served under s146 Law of Property Act 1925 being set aside (particularly at a late stage).
Tenants who receive a section 146 notice should (i) scrutinise such notices carefully (ii) take steps quickly to remedy breaches within a reasonable period and (iii) strongly consider making an application to Court for relief from forfeiture.
Hannah Ingham, Associate, Property Litigation Group