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Forfeiture and the Courts

As many of our readers will be aware that since the passing of the Commonhold and Leasehold Reform Act 2002 before a freeholder can take steps to forfeit a lease a determination is required. Section 168 of the 2002 Act gave jurisdiction to the Leasehold Valuation Tribunal to determine if there was a breach of covenant under the lease. As with all Leasehold Valuation Tribunal claims a more limited cost regime applies although some leases may allow recovery of any freeholders costs as an administration charge.
Recently a case came to be decided by the High Court Queens Bench Division known as Cussens v. Realreed Limited [2013] EWHC 1229 (QB). The freeholder applied to the County Court for a declaration that the Leaseholder was in breach of her lease of two flats which she owned which she had sub let and which had then been used for the purposes of prostitution. It appears form the judgment that the unlawful use itself was not disputed. The County Court made a declaration that the lease terms had been breached and made an order for the leaseholder to pay the freeholders costs. The tenant then appealed challenging the County Court’s jurisdiction to make such a declaration and also against the order for costs.
It was argued that given the terms of section 168 of the Commonhold and Leasehold Reform Act 2002 it was for the LVT to make the determination that there has been a breach of the lease. The High Court determined that there is nothing to stop a freeholder seeking a declaration in the County Court for such a breach of covenant. It is worth pausing here to remember that potentially a County Court could of course refer the matter itself to the LVT to make a determination as to whether there has been a breach.
With regards to the question of costs the leaseholder tried to argue that it was inappropriate to make an order for costs given if application had been made to the LVT a more limited costs regime would have applied. This would have limited the costs which the LVT could have ordered the leaseholder to pay to the freeholder and the court should have had regard to this. The judge referred to the fact that prior to the appeal no objection had been taken to forum chosen and that no doubt the leaseholder had hoped to recover her own costs if she had been successful in resisting the landlords claim. All of this being said the Court determined that there was nothing wrong with the order made by the Judge at first instance. The Judge had made the declarations sort (which this appeal upheld) and it followed he could make an Order for costs as he had done. The barb in the tail for the landlord was that the High court Judge did say that it would be open to the leaseholder to argue in any costs assessment hearing that the costs should be limited to take account of the LVT costs regime.
So what does this all mean? It leaves open to freeholders the right to apply to the county court. Tactically careful consideration needs to be given and certainly if there is no clear provision within a lease for costs recovery then a freeholder may be better advised to apply to the court rather than the LVT. The plus of the LVT for a determination is that often a hearing and determination can be achieved quicker allowing a freeholder to have any breach dealt with sooner.

Certainly any leaseholder who finds themselves threatened with any form of breach of covenant declaration or determination proceedings would be well advised to take urgent advice. Both to consider the merits of any such claim and the best tactics to adopt. A declaration can have fairly devastating effects given that ultimately it could lead to a forfeiture of the leasehold interest leaving the leaseholder owning nothing and potentially still owing any mortgage or other loan they had taken out!

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