A guide to freehold management company disputes

Although covenants for leaseholders are not generally restrictive and typically based on common sense, there are occasions when a leaseholder will breach the terms of their lease. Managing disputes with leaseholders can seem overwhelming with the time and effort it takes to resolve them, but the freeholder does have remedies available to them.

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Types of breach

Typically, the most common leaseholder breach is their failure to pay service or maintenance charges. When such a breach occurs, freeholders can make an application to the County Court to obtain a judgment, following which they can then issue an application for possession or forfeiture proceedings against the property.

The most common form of breach is:

· Leaseholders making unauthorised alterations to the property

· Non-payment of service charges

· Noise complaints

· Issues regarding parking spaces

· Repairing obligations

· Damage or leaks to the property caused by the negligence of the leaseholder

· Unauthorised sub-letting of parts or the entire property

Remedies

The remedy the freeholder can choose depends on the following:

· The nature of the breach

· The specific terms of the lease

· The freeholders commercial aims regarding the property

‘Jervis v Harris clause’

Amongst other options, remedies for a freeholder include ‘self-help’, which is known as the ‘Jervis v Harris clause’. This remedy applies to those situations where a leaseholder has failed to undertake repair works. In this instance, the freeholder may enter the property, carry out the repair work and reclaim the cost from the leaseholder. A word of warning here: the freeholder must exercise care and ensure they do not go beyond the repair relating to the breach, as this could amount to trespass.

Damages

For a breach in terms of a lease, the freeholder may seek damages from the leaseholder if this is an appropriate remedy.

Specific Performance

The equitable remedy of ‘specific performance’ may be used to force a tenant to carry out repair work. Alternatively, a freeholder can apply to the County Court for a declaration that a breach has happened and for an injunction to prevent the breach from reoccurring. In cases where the leaseholder has carried out or is in the process of carrying out unauthorised work or unlawfully parted with possession of the property, an injunction may be used.

Under section 168(4) of the Commonhold and Leasehold Reform Act 2002, freeholders can apply to a First Tier Tribunal, which, with sufficient evidence to prove the breach, can lead to a determination that a breach has happened. As with a County Court judgment regarding arrears of service charges, the determination can be enforced against the defaulting leaseholder by way of possession or forfeiture proceedings.

Forfeiture proceedings

A forfeiture clause allows a freeholder to end the lease early and obtain possession of the property because of the leaseholder’s breach of covenant. A freeholder can only forfeit the lease if it contains an explicit forfeiture clause and will usually have to go to court to do so.

After the freeholder has forfeited the lease, a leaseholder or a third party with an interest in the lease, such as another owner, can apply for relief from forfeiture from the court. The approach the court will take depends on:

· Type of breach

· Seriousness of the breach

· Conduct of the parties

· Whether the breach can be easily rectified

This is weighed against the loss (if any) suffered by the freeholder and the potential loss (if any) by the leaseholder if the relief was not granted. If the relief is granted, the lease will be reinstated to the leaseholder.

If the forfeiture application is successful, neither the freeholder nor the leaseholder has any continuing liabilities under the terms of the lease, although they remain liable for breaches that happened before the forfeiture. The lease will immediately end, and the freeholder is entitled to possession of the property.

Serving notice

In order to begin forfeiture proceedings, the freeholder must initially serve a valid notice under Section 146 or the Law of Property Act 1925. The notice must:

· Specify the breach being complained of

· If the breach can be remedied, require the leaseholder to remedy it

· Require the leaseholder to make monetary compensation to the freeholder for the breach

Following the service of the Section 146 notice, the leaseholder should be given a reasonable time to remedy the breach if it can be remedied. Court proceedings cannot be started unless the leaseholder fails, within a reasonable amount of time, to remedy the breach, if it is capable of remedy, and to make reasonable financial compensation for the breach that satisfies the freeholder.