Forfeiture remains one of the strongest remedies available to managing agents and freeholders when a leaseholder breaches the terms of their lease, whether that be failing to pay service charge or unauthorised subletting. However, it is a right that can easily be lost—sometimes without freeholders or managing agents even realising it.
Understanding how the right to forfeit can be waived is essential. If waived, the freeholder and/ or managing agent may no longer be able to take possession of the property, even if the leaseholder is in significant arrears or has breached their lease by another means.
When is the Right to Forfeit Waived?
A right to forfeit is considered to have been waived if three things happen:
1. The freeholder or managing agent knows about a leaseholder’s breach of lease
Waiver can happen if the freeholder is aware that the leaseholder has breached the lease—for example, where service charge arrears have built up or the leaseholder has carried out unapproved alterations.
2. The freeholder or managing agent then take clear action which recognises the lease as continuing
Once a breach is known, any action that suggests the freeholder or managing agent accepts the lease is still valid and ongoing can be treated as waiver. This could include treating the leaseholder as a tenant in good standing, such as sending out fresh demands or dealing with other aspects of the lease. In effect, it shows the freeholder or managing agent is choosing to keep the lease alive rather than end it.
3. That action is communicated to the leaseholder
It is not enough for the freeholder to just have knowledge or to act internally. The leaseholder must actually become aware of the freeholder’s actions. For example, if the freeholder sends a demand letter, email, or statement of account, this communication makes the waiver effective.
If all of the above actions are taken by the freeholder or managing agent, the leaseholder could rightly claim that the right to forfeit has been waived.
The 18-Month Rule and Section 20B Notices
Another risk area is the 18-month rule for service charge demands. If charges are not demanded within 18 months of being incurred, they may no longer be recoverable—unless a Section 20B notice is served to preserve the right to recover.
But here lies the tension: serving a Section 20B notice could be seen as an acknowledgement that the lease continues, which may amount to a waiver of the right to forfeit.
Freeholders and managing agents therefore need to take a commercial view: is the priority to preserve the right to forfeit, or to secure recovery of service charges?
Handling Payments Safely
If a leaseholder in breach makes a payment of service charges or ground rent, the safest course of action is to place the funds in suspense until legal advice is taken. Allocating the payment to their account straight away could be seen as waiver.
Key Takeaway for Managing Agents
The right to forfeit can be lost very easily—and often by accident. Managing agents should:
- Think carefully before sending demands or correspondence where a leaseholder is already in breach.
- Be aware of the risks around Section 20B notices.
- Always seek advice before accepting or allocating payments.
At Brady Solicitors, we regularly help managing agents and freeholders navigate these tricky situations, balancing the need to preserve forfeiture rights with the commercial reality of service charge recovery.
