Forfeiture of residential lease for non-payment of ground rent

Forfeiture of residential leases is rare and forfeiture of a residential lease for non-payment of ground rent is even rarer.

At present there are statutory limitations on a landlord’s right to forfeit a residential lease. These are contained in the Commonhold and Leasehold Reform Act 2002. The ground rent must either be in arrears by £350 or more than 3 years in arrears.

In practical terms, before a landlord can consider forfeiture of a residential lease, the lease itself must contain a provision allowing for forfeiture and the landlord must have served on the tenant/leaseholder a Notice under Section 166 of the Commonhold and Leasehold Reform Act 2002, in the prescribed form and providing the correct details in order to demand the ground rent.

It is an established principle, however, that if a landlord wants to rely on an act of default by the tenant in order to forfeit a lease the landlord must not waive the right to forfeit and in particular, the landlord must not do any act which recognises the continued existence of the lease between the tenant’s breach of lease and the exercise of the landlord of the forfeiture process, which with residential property must involve Court proceedings.

In a case of a lease with modest ground rents, those of say less than £350 per year (so that one year’s arrears will not enable the landlord to exercise any right to forfeit), for example, is the landlord not caught in the following catch-22 scenario:

1. First year – landlord serves valid Notice on tenant for ground rent and tenant fails to pay; the ground rent arrears are less than £350 and therefore the landlord cannot forfeit on the ground of non-payment of ground rent alone.
2. Second year – the landlord serves Notice under Section 166 for ground rent and tenant fails to pay, so that in principle the amount of the rent arrears now overcomes the statutory embargo because the arrears exceed £350.

However, does the act of serving the demand for ground rent in the second year and thereby treating the lease as continuing, waive the right to forfeit for any reason connected with the failure to pay ground rent in the first year?

If that is the case, then the statutory requirement for a landlord to serve Notice demanding ground rent under Section 166 of the Commonhold and Leasehold Reform Act 2002 will always defeat a landlord’s right to forfeit for non-payment of ground rent where the ground rent is less than £350 per annum.