Cheerupmate2 Ltd v De Luca Calce

Landlord and tenant – Forfeiture – Long lease – Appellant landlord purporting to forfeit respondent’s underlease for arrears of ground rent — First-tier Tribunal concluding that no forfeiture had taken place – Whether appellant issuing valid notice under section 166 of Commonhold and Leasehold Reform Act 2002 – Whether re-entry breaching forfeiture clause – Whether appellant attempting to forfeit lease before requisite three years elapsed — Appeal dismissed The appellant acquired a long lease of land at 2, Railway Bank, Hyde in March 2015. The respondents held an underlease, granted out of that lease in 1948 for 900 years. Section 166 of the Commonhold and Leasehold Reform Act 2002 provided that a notice complying with the terms of the section had to be served, before the tenant had to pay, in the form prescribed by regulations. The Schedule to the Landlord and Tenant (Notice of Rent) (England) Regulations 2004 included a note to leaseholders that the notice had to include the words: “Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges or administration charges (or a combination of them) if the amount owed is £350 or less, or none of the unpaid amount has been outstanding for more than three years”. Following an amendment in 2011, the prescribed words were: “… unless the amount owed is more than £350, or consists of, or includes, an amount that has been outstanding for more than three years”. On 12 March 2015 the appellant sent a letter to the respondent informing him that it was his new landlord, enclosing a notice, intended to be a section 166 notice, in respect of unpaid ground rent, amounting to £11. When the respondent did not make that payment, the appellant entered the land let by the underlease and secured it. Clause 3 of the underlease authorised the appellant to forfeit the lease for non-payment of rent: “in case the said rent hereby reserved … shall at any time …. be in arrear for … two years after the same shall have become due”. Section 167 of the 2002 Act provided that there could be forfeiture only if either the arrears exceeded a particular amount (currently £350) or the rent had been in arrears for more than three years. After taking possession, the appellant applied to HM Land Registry to close the respondent’s leasehold title on the grounds that the underlease had been forfeited. The respondent objected and the dispute was referred to the First-tier Tribunal (FTT) which concluded that the purported forfeiture was not valid. The appellant appealed. Held: The appeal was dismissed. (1) Compliance with section 166 was a condition precedent to a tenant’s liability for ground rent under a long lease. Here, there was a defect in the notice because one of the notes to the leaseholder was in an out-of-date format which followed the pre-amendment wording. The meaning of the two notes was identical but the modern form of words avoided the double negative and was much clearer. Technical defects in notices should not invalidate them where their meaning remained clear. Where the tenant was not misled and had all the information it needed, the landlord had been found to have complied with the section: see Lindsey Trading Properties Inc v Dallhold Estates (UK) Pty Ltd (1995) 70 P & CR 332, Rogan v Woodfield Building Services Ltd [1995] 1 EGLR 72 and Chasewood Park Residents Association v Kim [2001] EWHC 579 (Ch). In this case the defect was the use of wording which Parliament had specifically decided should not be used. The wording was part of the explanatory notes for the leaseholder rather than the notice itself, but that did not assist the appellant. The notes for the tenant were an important element in the notice and were the subject of the regulations that prescribed the form of the notice. The pre-2011 wording with its double negative was difficult to understand, in particular, whether the two limbs of the prohibition were complementary or alternative. The amended wording was much clearer. Accordingly, the section 166 notice was invalid. It was not sufficiently clear for the respondent to understand the position. (2) The effect of section 166(4) of the 2002 Act was to modify, not only the provisions of a lease about payment, but also its provisions about non-payment, of which forfeiture was a clear example. The sub-section contrasted the date when rent would have been payable, but for section 166, with the date on which it was payable, and ensured that provisions for late payment in the underlease took effect on the basis that rent was not unpaid while a section 166 notice had not been served. The reference in the section 166 notice to the date when payment was due under the lease was clearly required in order to let the tenant know exactly which instalments of rent were being claimed. In this case, the effect of section 166(4) upon clause 3 of the underlease was that the appellant could not forfeit for arrears until two years after the due date set by the section 166 notice served in respect of those arrears. (3) Section 167 of the 2002 Act was a further restriction on the right of a landlord of a long lease of a dwelling to forfeit it. It had the effect that forfeiture for an amount less than £350 could only be for “an amount which had been payable for more than a prescribed period”. The appellant could not forfeit for arrears until three years after the due date set by the section 166 notice served in respect of those arrears. The section was enacted to protect tenants from forfeiture, or at least to ensure that forfeiture was used only as a last resort and after extensive warning had been given, particularly where only a trivial amount was outstanding. The construction which the FTT found to be correct was consistent with that policy. The parties appeared in person by their representatives. Eileen O’Grady, barrister Click here to read a transcript of Cheerupmate2 Ltd v De Luca Calce