How hard can forfeiture be?

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    How hard can forfeiture be?

    Firstly, hello to all! I’ve been a lurker for a few weeks and am so relieved to find a site that helps landlords/freeholders. I’m fairly new to this experience and get the impression that, by and large, landlords are generally regarded as people that don’t need or deserve any help….although could be wrong on that .

    I’ve searched the forum for a similar case but cannot find one; my story is a little lengthy but I’ll summarise:

    I’m acting on behalf of my son who is the freeholder of a property that was converted to three leasehold flats in 2008. He works full time as a project manager, I’m retired so have the time to do the legwork on his behalf.
    He bought the leasehold to his flat in 2017, unbeknownst to him at the time the freeholder was a complete failure in terms of meeting his obligations. In 2019 the freeholder declared himself bankrupt so my son managed to buy the freehold at auction for £18k, money left to him by my father. His main reasons for buying were to manage the freehold in a professional manner and to have some control over his destiny. We found out during the buying process that one of the lessees has not paid any ground rent or service charges since she bought her lease in 2016; we had to pay almost £2k to clear her debt to the outgoing freeholder. She had paid cash (from her divorce settlement), for her flat and has the mindset that she does not have to pay any more money; she is a very difficult person to deal with. Crucially, she does not work and claims that her sole source of income is Universal Credit, has no assets to speak of and is mortgage free.

    Prior to the previous freeholder going bankrupt, the property management company had arranged for solicitors to commence legal action to recover the debt; this was suspended until my son had completed, so it was recommenced in August 2019. My son was initially happy for the solicitors to continue; with hindsight this subsequently proved to be a poor decision. He was passed from pillar to post by the (large firm), of solicitors/para legals, whilst the debt was continuing to accrue. Eventually in Feb 2020 the law firm managed to obtain judgement for my son, albeit for service charge arrears only, (£2468.53), and paid in instalments of £46/month. They later admitted that they had made an administrative error by excluding the ground rent arrears, the proper claim should have been for approx. £4k. The law firm eventually agreed to appeal against the instalments, and in Aug 2020 the original judgement was set aside and my son received judgement for the full amount to be paid forthwith. Interestingly the Judge warned the lessee several times that she was in a very precarious situation and could lose everything by forfeiture. He strongly urged her to seek legal advice as a matter of urgency. As far as we are aware, the lessee has been consulting CAB since 2019, who advised her to declare that she has COPD (although she still smokes), and therefore no court would grant forfeiture. At the August hearing the Judge did not appear to be concerned about the COPD. We had already had a meeting with the lessee in Dec 2019 in which she clearly stated that she would only do what a court ordered; we expressed our frustration and suggested that she considered selling her flat to settle her debt. Following the second judgement, we sent the lessee a letter in August 2020 detailing the amount owing, and that we were prepared to give her until 31 March 2021 to settle the debt. She subsequently informed my son by text that she would sell her flat to settle the debt in full. In late September she advertised her flat for sale, albeit at an inflated price of approx. 40% above its true market value and incorrect remaining term of lease, perhaps to discourage potential buyers? There has been no genuine interest in the property, e.g. no viewings or offers.

    The law firm has since suggested to my son that they go back to court to obtain judgement for the correct amount, and then proceed to apply for forfeiture. They have given him an estimate of costs of circa £4500 to do this. I do not see the point in pursuing another CCJ for the correct amount as she does not have the means to pay, but I can see the merits of forfeiture.
    My son does not have that sort of money at his disposal, so I have decided to act on his behalf, so now we come to the point of my post – at last!

    I have done a lot of reading around the subject of forfeiture, and whilst there seems to be a certain amount of cautionary notes for landlords, I see the process as relatively straightforward in this case. I have in the past conducted my own divorce, and successfully used the Small Claims Court on several occasions, so have a feel for how the courts work. Perhaps I should have been a solicitor instead of an engineer….

    We intend to send a letter of claim on 2 December; this has been drafted in accordance with the pre action protocols detailed here:

    https://www.justice.gov.uk/courts/pr...s/debt-pap.pdf

    Depending on lessee response, we will need to approach the First Tier Tribunal if the debt isn’t acknowledged, or submit court form N5 if it is. So far, the lessee has not formally acknowledged or denied any of the debt, but the courts did not previously allow that to affect judgements. If judgement is granted then we will apply for repossession with form N119 and subsequent eviction by bailiffs if appropriate.
    The debt will be a little over £5k by the 31 March deadline; the flat is probably worth circa £90k.
    All relevant demands for ground rent and service charges have been issued correctly in accordance with Section 166 since 2016, and there is a comprehensive clause in the lease re forfeiture. I am aware of the Doctrine of Waiver, and we do not intend to do anything that could acknowledge existence of the lease from now on.

    I have read the information around a Section 146 notice, but think that the actions above are more appropriate as we are pursuing a debt, not breach of covenant. We have repeatedly told the lessee that this is not a course of action that we want to pursue, but she has left us with little alternative. I am also aware of the recent Covid related legislation regarding evictions. I have also considered taking out a charging order on her flat, but there seems to be little point until she gets some interest from a potential buyer.

    Needless to say, this is stressing my son out big style as he now really regrets buying the freehold with his Grandads money; he feels that he’s let Grandad down.

    Anyway, thanks for reading, please let me know if I’ve got this wrong or could be doing something differently or in a more effective way – I will certainly keep the post updated for anyone else in a similar position.

    #2
    In general I advise DIY litigation -- but in this instance I would go to a specialist solicitor or better still a direct acting barrister and arrange a payment on results (no win no fee) option if possible. When the property is sold the fee will be paid out of the proceeds.

    The lessee does have other options - they can sell, or they can take a mortgage, both of which might be possible, or they can let out the flat and rent a cheap place elsewhere.

    Comment


      #3
      Thanks Andrew, points noted. The lessee could not realistically obtain a mortgage and the lease precludes sub letting. To be honest, we really hope that she sells, all we want is the debt to be settled and for her to walk away with money to rent or buy elsewhere. I'll look into the no win no fee option, but the telephone advice I've had from local solicitors so far doesn't indicate that there are too many willing to offer that.
      Thanks again.

      Comment


        #4
        Maybe you should consider agreeing with the other lessee to grant specific permission to sub-let so that debts can be repaid-- as an alternative to having them lose their flat altogether.

        Why on earth did you allow a court to say they had to pay at £5/week when they have a substantial asset?

        Comment


          #5
          And they can get a kind of mortgage - it's called equity release

          Comment


            #6
            Thanks Andrew, unfortunately we had no say in the £46/month instalment judgement, the solicitor accepted that on my son's behalf. We went straight back to the solicitor to insist that it was unacceptable. That is one of several reasons why we are no longer using the solicitor.

            The other lessee has only just moved in so has had no contact with my son, but my son is quite opposed to the idea of sub letting. To be honest he just sees it as more hassle that he just doesn't need.

            We are not in a position to advise the lessee, she appears to be taking advice from CAB; I don't think that is necessarily good or useful advice.
            The only asset that she has is her flat but she doesn't seem to genuinely want to engage with the sale and co operate with my son.
            Thanks again

            Comment


              #7
              Let's look at it another way:

              So your son has bought a freehold and discovered historic debts against that freehold that he now wants to enforce.

              The first question is has that historic debt actually cost him anything?

              I suggest not, apart from the £2K he paid to the seller of the freehold for service charge arrears, and he could have negotiated over that.

              If they had been paid as they should the the outgoing freeholder would have already had them, and I doubt that would have affected his selling price.

              Ground rent arrears of another £1.5K then turn up, maybe annoying but again your son has not 'lost' those, they were never his at the time and again if they had been paid as they then the outgoing freeholder would have had them.
              Again I doubt they had any effect on the price your son paid.

              So you now want her to sell her £90K flat in order to pay off a, you now say £5K, historic debt that wasn't really owed to your son in the first place.

              It's entirely his choice to persue that historic debt, he could just ensure that she is paying what she should be to him now.

              Write off the debt up to the time of the freehold sale, that costs you nothing, legal fees have probably already cost you more than that and will only increase if you carry on.
              The only winners in these situations are the lawyers.
              Then ensure that she pays ongoing service charges and ground rent in future, and stop stressing about it.

              Comment


                #8
                I wonder if a better solution might be to secure the debt by way of a mutually agreed charging order. My experience is that postponing the debt is usually fine by the debtor. Then she is starting with a clean slate.

                I believe ground rent can be claimed via UC which may help to free up a little more to meet the service charges.

                I would suggest a meeting with her to negotiate. It may be possible to have the service charges debited straight from the UC and paid direct to the freeholder. Have you investigated this?

                The local authority has a homelessness prevention fund and it might also be worth you helping her to make an application. CAB should be helping with this stuff. If there is a law centre nearby she may be able to get some decent housing advice from the housing team, she will qualify for legal aid as she is on UC and she is at risk of homelessness.

                Comment


                  #9
                  nukecad,

                  Ummm... except that service charge debts do not belong to the freeholder. If not recovered they are stolen from the other lessees (of which the FH is one and there is one other). The previous FH was forced to pay for maintenance (or part of a reserve) from his own pocket, and simply passed on this amount owed (to all the lessees).

                  I have little sympathy wrt the ground rent -- but the same applies -- creditors do not simply cease to become creditors when a business changes hands.

                  Comment


                    #10
                    Thanks again for all replies, much appreciated.

                    nukecad, the arrears were paid by me as my son didn't have any funds left, I tried to negotiate with the administrators but no success. Of the arrears, ground rent made up £1400, service charges made up £553. I pointed out to the management company and administrators that the £553 should have gone back to the service maintenance fund. I was assured that this would happen, but it didn't, go figure....I also paid court fees amounting to £460. So the debt hasn't cost my son anything, but has cost me £2413. I have also footed the bill for essential roof repairs as there was nothing left in the service maintenance fund; those repairs cost £3400, admittedly not the fault of the lessee, but my son is trying his best to work up some contingency into the service maintenance fund - wall ties are the next job at circa £2k.

                    We would like nothing more than for the lessee to pay her dues going forward, but she has been extremely intransigent and has repeatedly stated that she doesn't need to pay either ground rent or service charges. To give you an idea of what we are dealing with, here is a sanitised version of a webmail that she sent to the solicitor prior to the first court hearing:

                    'Sorry to inform you that I am receiving jobseekers my income is £73 a week by the time I pay my bills I only have £80 left a fortnight time I pay my bills and food left with not a lot to survive on if Mr freeholder refusing my offer then he can take me to court cannot work due to my COPD half of what Mr freeholder is asking me to pay is not in the lease at all personally Mr freeholder is just adding more and more on to my bill I have had advice from citizens advice could Mr freeholder please send me receipts of any work he has done on the property s thanking you miss leaseholder'

                    We have tried to work out a way forward with her, but I genuinely think that she doesn't understand the concept of leasehold ownership, with the requirement to pay ground rent and service charges. I'm guessing from your response that you have little sympathy with my son's cause, but he cannot continue to operate effectively with one third of his income missing, and I don't see why he should.

                    Thanks again for your time.


                    Jon66, we have tried to negotiate with the lessee, but she will not engage. I'm sure that she is taking advice from CAB, the judge also suggested that she talk to Shelter and mentioned a couple of local solicitors that may offer free advice. She certainly isn't prepared to discuss her affairs with my son or me. We have also asked the management company if they know of a way round this, but it's a situation that they haven't experienced before. Frankly, they want the lessee to leave as she has caused them some headaches over the years.

                    Thank you for your time.

                    Andrew, I accept your point about the service charge debts, as stated above I think we're going to have to take the hit on the £553 lost to the previous freeholder. If my son eventually recovers this debt he is planning to deposit a sum into the service maintenance fund.

                    Thank you again, I do appreciate you taking the time to respond, and I am trying to get a balanced perspective on what seems to be a lost cause.

                    Comment


                      #11
                      Indeed, but I was playing devils advocate.

                      Writing it off does not cost the son anything (extra), legal costs for persuing it will. (But of course may be put on the losing party).

                      It seems a small amount to be forcing someone to sell their home over.

                      Ummm... except that service charge debts do not belong to the freeholder. If not recovered they are stolen from the other lessees (of which the FH is one and there is one other).
                      Ummm... so by that logic if the son does recover the service charge then he should give half of it to the other (3rd) leasholder who it has also been stolen from.

                      Comment


                        #12
                        Originally posted by nukecad View Post

                        It seems a small amount to be forcing someone to sell their home over.
                        I agree, and we have had some difficulty from a moral perspective, but we (and the court) cannot see any way forward other than forfeiture. I have even considered offering a figure to buy the flat (I can only afford £50k), so that she doesn't walk away with nothing. Unfortunately that is approx. £100k less than she is asking, so can imagine what the response would be. It is a real dilemma for us.

                        Hope you can now see why I posted in the first place........

                        Comment


                          #13
                          Originally posted by nukecad View Post
                          Ummm... so by that logic if the son does recover the service charge then he should give half of it to the other (3rd) leasholder who it has also been stolen from.
                          That is what is happening anyway. At the moment the OP has fully funded the theft out of their own pocket, so if it gets recovered it will go into their own pocket. The service charge account owes unrecovered money to the FH (temporarily) -- If it was taken from the service charge account then it needs to go back there.

                          So the answer to your response is basically yes.

                          Comment


                            #14
                            Have you looked at having the service charges debited straight from her UC?

                            It appears to me this is the ideal solution.

                            Under schedule 9 of the SS (C&P) regs 3rd party deductions could be made when:

                            Para 5(1)(a) - he or his partner has arrears of rent which equal or exceed four times the full weekly rent payable, or
                            Para 5(1A) - where the rent includes charges for services included under paragraph 4A(1)(d) and the arrears for these services exceed £100.00

                            Under schedule 6 of the UC, PIP, JSA & EA (C&P) Regs, 3rd party deductions can be made when:

                            Para 7(3) - the claimant is in debt for any—
                            (a) rent payments;
                            (b) service charges which are paid with or as part of the claimant’s rent.

                            Paragraph D2120 of ADM Chapter D2 states that operational guidance should be referred to for further criteria about the amount of debt when deciding if deductions are appropriate.


                            https://www.gov.uk/government/public...-for-landlords

                            Comment


                              #15
                              In fact is she even claiming UC for the service charges?

                              Comment

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