Leases and licences: Sizing up the available options

Question

I am the freehold owner of a residential block. A leaseholder has carried out alterations in breach of the lease and I would like to exercise my right to forfeit. As the procedure can take some time, how do I avoid waiving the right to forfeit?

Answer

Once a landlord has knowledge of a breach of a lease, they can elect to enforce the right to forfeit or treat the lease as continuing. An equivocal act by a landlord that recognises the lease as continuing to exist and which is communicated to the tenant will constitute an act of waiver – even where the landlord is not entitled to exercise its right to forfeit due to statutory restrictions. Landlords pursuing forfeiture should carefully consider any communications with the leaseholder.

Explanation

Before forfeiting a residential lease for a breach other than non-payment of rent, a landlord faces a number of statutory restrictions. A landlord must obtain a determination, in the case of non-payment of service charges or administration charges, under section 81 of the Housing Act 1996 (unless the leaseholder has admitted the charges are owed) or, in the case of any other breaches, under section 168 of the Commonhold and Leasehold Reform Act 2002 (unless the leaseholder has admitted the breach). The landlord must then serve a notice under section 146 of the Law of Property Act 1925 specifying the breach and requiring the leaseholder to remedy it within a reasonable period of time (where possible).

It may take the landlord some time to comply with these statutory restrictions, and until it has, it is not entitled to exercise its right to forfeit. However, the Upper Tribunal case of Stemp v 6 Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC); [2018] PLSCS 215 has confirmed that a landlord can still waive its right to forfeit during this period.

What communications to a defaulting leaseholder will constitute a waiver? A demand for rent or other charges under the lease will almost certainly constitute a waiver, and so a “stop” should be placed on the leaseholder’s account to prevent demands being sent.

However, landlords should also be mindful of section 20B of the Landlord and Tenant Act 1985, which limits landlords to 18 months in which to notify leaseholders of charges being incurred or to demand payment.

The UT stated that not all communications with leaseholders will constitute a waiver, and commented that reliance by the landlord on the terms of the lease for the purpose of carrying out its own obligations did not amount to a waiver.

Question

I have some pipes running over a strip of land owned by my neighbour installed pursuant to a licence agreement permitting the construction, maintenance, alteration and renewal of the pipes, and also permitting entry onto the strip of land for inspection and maintenance purposes. A licence fee of £50 is payable annually on 1 October, and there is a right of forfeiture if it is not paid. The licence agreement says it runs in perpetuity, but that if it is terminated then the pipes have to be removed. My neighbour and I have been in a dispute for some time, and I didn’t pay the £50 on 1 October. My neighbour now says that the licence agreement is forfeit and has told me that I have to remove the pipes, or he will remove them. Can I get relief from forfeiture if I pay the outstanding money?

Answer

Yes, in principle, you should be able to seek relief from forfeiture.

Explanation

In Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Co [2019] UKSC 46; [2020] EGLR 51, the Supreme Court revisited the equitable jurisdiction to grant relief from forfeiture, and confirmed that “equity may relieve against the forfeiture of possessory rights over real property, falling short of a proprietary interest” (paragraph 46), which may extend to rights conferred by a licence.

The Supreme Court made clear, however, that this doesn’t mean relief from forfeiture will always be available for all licences pertaining to land. In Manchester Ship Canal, the Supreme Court highlighted that: (1) the licence granted an element of virtually exclusive possession; (2) coupled with a high degree of control over the land parcel; (3) was granted in perpetuity (albeit subject to termination provisions); and (4) the rights granted were very similar to those granted by an easement, in respect of which relief from forfeiture would be available.

Although every case will need to be considered on its own merits, there would seem to be clear parallels with the licence agreement in the scenario outlined above, such that this licence agreement would be likely to fall within the “boundary” of equity’s jurisdiction, discussed by Lord Briggs at paragraph 46.

This article was first published in Estates Gazette on 16 November 2020 and was written by Lauren Fraser, senior associate at Charles Russell Speechlys LLP and Jacqueline Lean, barrister at Landmark Chambers. For more information, please contact Lauren on +44 (0)20 7427 6418 or at lauren.fraser@crsblaw.com.