The Upper Tribunal case of Stemp & Anor v 6 Ladbroke Gardens is a useful reminder to managing agents and their RMC clients of how to apply the test for waiver, as Jonathan Watts of Brady Solicitors explains.
It is not uncommon when we are dealing with an arrears case for the managing agent to ask, “is it ok if we include the defaulting tenant in the s.20 major works consultation?”
There are essentially three options:
- Wait until you have recovered the arrears (or the case is concluded);
- Include the defaulting tenant and risk that the right to forfeit has been waived, or
- Exclude the defaulting tenant from the consultation and risk a shortfall in the major works fund.
Historically, the view has been that consulting with a leaseholder in arrears is an effective acknowledgment of the lease, and that therefore you would waive the right to forfeit.
However, as time is often critical, the managing agent will generally go for option 2, and include the defaulting leaseholder in the consultation and risk the waiver point.
This is what happened in the Stemp Upper Tribunal appeal case.
This case concerned the top floor leaseholders in a five-dwelling leasehold maisonette in London. The lease had clear repairing covenants, which the RMC was bound by, but no provision for a sinking fund nor reserve fund to accumulate funds for future major works projects.
By 2014/15 the building was in a state of disrepair, with the roof in particularly bad condition and, in 2016, the RMC (6 Ladbroke Gardens) demanded close to £19,000 from each leaseholder to carry out the repairs.
The managing agent and its RMC client also had to comply with statutory notices and have all the doors replaced with fire doors.
The RMC (also the freeholder) included the Stemps in the S.20 consultation process, despite them being in arrears.
So, did this constitute a waiver of the right to forfeiture?
In considering the question of waiver, the Tribunal will consider “whether in all the circumstances the act relied on as constituting waiver is so unequivocal that, when considered objectively, it could only be regarded as consistent with the lease continuing.”
With this test for waiver front of mind, Judge Huskinson in the Upper Tribunal took the view that neither the inclusion within the s.20 consultation nor the enforcement of the fire authority statutory notice amounted to acts that “could only be regarded as being consistent with the lease continuing”.
Inclusion in a s.20 consultation does not constitute a waiver of the right to forfeit.
He explained that the RMC could not be expected to treat the ongoing arrears dispute as a reason to postpone the major works as it would breach the repair covenants in the lease. Equally, by excluding the Stemps from the major works consultation, it could leave the RMC insolvent.
Both the acts in question can be regarded in more than one way, unlike for example a demand for ground rent, which can only be regarded as being consistent with the lease continuing.
‘Costs in contemplation’ can be recovered
The Stemp case also included an important point on costs.
Even if there has been a waiver, costs incurred in contemplation of forfeiture up until the point of waiver are recoverable – so long as there is a suitable costs clause that allows ‘costs in contemplation’ of a section 146 notice or proceedings under that section.
It can be a challenge to understand how and when you may have waived the right to forfeit. For expert legal advice on this and other property management challenges, contact the specialists at Brady Solicitors.