The importance of waiver in service charge arrears : Brady Solicitors

Clare Brady offers practical advice to managing agents on waiver of forfeiture and ensuring you can continue effective service charge collection and good management of your block.

In an ideal world, you would never waive the right to forfeit a lease, not least because you lose one of the key levers for recovering service charge arrears. Avoiding waiver of forfeiture can however be peppered with difficulties and it is unfortunately quite common for a managing agent to unwittingly end up in a difficult situation.

So how does waiver occur?

Waiver of forfeiture occurs when there is a breach of the lease, but the landlord carries out an act that could be argued confirms the landlord / leaseholder relationship is still in place.

For example, if a leaseholder hasn’t paid a previous service charge and the landlord sends a demand for the next service charge period, he (the landlord) will waive the right to forfeit the lease in respect to the previous demand. This makes that service charge debt much harder to recover as there is no forfeiture remedy on which to rely.

Each waiver case is decided on its own facts; even correspondence sent on a ‘without prejudice’ basis could constitute a waiver of forfeiture. The upshot of this is that managing agents and their landlord clients tend to steer away from serving new service charge demands when arrears are being collected. This is very much Brady Solicitors’ recommended approach.

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As well as withholding new demands from defaulting leaseholders, it is also good practice to cease correspondence with those leaseholders altogether.

This ‘no correspondence’ approach can, however, cause practical difficulties for managing agents.

Here are some ways in which you can deal with some common problems, and avoid entering into a forfeiture situation:

Emergency repairs request: you have a statutory duty to attend to an emergency repairs request. If a request for an emergency repair comes from a leaseholder in arrears, we recommend that you fix the repair in the usual way but do not correspond directly with the leaseholder.
RMC director in breach: when you need to correspond with your RMC directors, ensure you correspond only with the other directors – have a system in place to make sure communications are not sent to the defaulting director. If your block has only one director, check your RMC constitution to see if you have provisions to expel them if necessary.
Major works consultations: you will be familiar with the section 20 consultation rules. By applying for dispensation from consultation in advance of the works, you won’t have to correspond directly with the leaseholder and you will avoid breaching the Section 20 rules.

What do you do if you do end up waiving the right to forfeit?

The first thing to remember is that forfeiture only relates to the enforcement of the judgment, and the threat of a judgment can be enough to persuade a defaulting leaseholder to pay. In our experience however, leaseholders are increasingly aware of the waiver arguments and are ready to use them.

There are several arguments at your disposal to counter waiver, and we would be happy to talk you through your options.

In short, all is not lost when it comes to waiver.

By understanding how and when waiver can arise and what you can do to avoid it, you can maximise your chances of retaining the right to forfeit the lease and ensure that future service charge recovery efforts are not hampered and your client is protected from legal costs.

For advice on your specific situation or for general assistance with any service charge recovery matter, please contact us on 0115 985 3450 or click here to send us an email.

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For help or advice on a legal property management question contact the friendly and expert Brady Solicitors team to find out how we can help you.