Freeholder has forfeited lease

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    Freeholder has forfeited lease

    We live in a block of nine flats which formed an RTM some three years ago. The flat on the ground floor has always been vacant and I know the RTM is owed a lot of service charges.

    Two weeks ago there appeared a notice affixed to the front door that stated that in pursuance of a court order the lease has been forfeited, the locks changed (bright new yale locks can be seen). The notice goes on to say that the property was entered into by a High Court Bailiff. On friday builders for the landlord started what appears to be a refurbishment program


    I know that there is no mortgage over the property as the RTM have been trying to get the service charge arrears in for ages and with no success

    I spoke to the managing agents of our RTM who know about it and claim they can now get the service charges arrears from the freeholder as the lease no longer exists and under RTM legislation any shortfall in the recovery is made from the freeholder. The freeholder admits that going forward this is the case but the arrears prior to the forfeiture is our problem.

    I thought forfeiture was impossible and find it rather shocking. The flat is worth around £600k it is in SW2 and has a very large layout and private garden. The debt was including all costs etc was for less than £10k

    #2
    From memory, once the lease is forfeited, the service charge arrears disapear.
    ( don't quote me on this, and it's late at night, so am not going to spend hours checking )

    The freeholder now has a flat worth £ 600,000 which he can if he wishes, pay off the service charges.

    We are a RMC Co. and we can refuse to assign the lease until previous service charges are paid, but as an RMC we would be getting the £ 600,000 windfall, and the sale price minus costs would go into our companies bank account, and either stay there towards the service charges, or a cheque made out to each of the shareholders, lets say for example in our case, that's £ 75,000 to each shareholder.

    In your case, you are a RTM Co. and I think the freeholder is entitled to the money, and not the RTM company and will not have to pay the previous service charges to anyone.

    BUT, you state "the recovery is made from the freeholder. The freeholder admits that going forward this is the case"
    If freeholder is good enough to pay the arrears, you are very lucky. And freeholder still walks away with ½ a million pounds.
    You have had no success recovering the service charges as the leaseholder had no money, or could not be found for 3 years.
    Just keep pressing the freeholder for the service charges, But in a diplomatic and friendly way, with no threats at all, and I think you just may have satisfaction.

    I assume the freeholder took action because of none payment of service charges ?
    If so, forfeiture is to enable those service charges to be paid via selling the flat to pay off the debts.

    I think the freeholder holds all the cards because you are a RTM Company.

    Comment


      #3
      The RTM should buy a copy of the leasehold title from Land Registry Online to find out the new owner and send a service charge demand for 3 years arrears to be paid within one month. If the arrears are not settled , then try using application to the small claims court ( under £5K ) against the new owner.

      Comment


        #4
        Originally posted by Gordon999 View Post
        The RTM should buy a copy of the leasehold title from Land Registry Online to find out the new owner and send a service charge demand for 3 years arrears to be paid within one month. If the arrears are not settled , then try using application to the small claims court ( under £5K ) against the new owner.
        If the lease has been forfeited then the subject matter that gives rights to recover such charges ceases to exist. If a new lease is granted then the charges would pre date the new lease and would not be recoverable.

        It is an interesting point and it may well be that this relatively new legislation on RTM's did not consider such a scenario and there may well be no case law to take guidance from.

        It would appear that the landlord makes a windfall of £600k and members of the RTM will have to cover the arrears.

        It may be cost effective to simply write off the arrears

        Comment


          #5
          Sounds mad to me:

          RTM gets landlord to repossess due to unpaid service charge, and when he does, all liability for it vanishes?

          I bet Leaseholdanswers knows the correct course of action. Wait till he comes along.
          To save them chiming in, JPKeates, Theartfullodger, Boletus, Mindthegap, Macromia, Holy Cow & Ted.E.Bear think the opposite of me on almost every subject.

          Comment


            #6
            Forfeiture is to pay the debt that was owing. ( service charges )
            So you can't ask again for the service charges when the debt has been paid by obtaining a flat worth £ 600,000, be it to the freeholder.

            The freeholder issued the forfeiture notice, as from memory the RTM company cannot, therefore the freeholder "should" pay off the service charges, as that's what the forfeiture was for. and pay it into the RTM bank account, as no doubt the RTM company requested the freeholder to observe the lease and obtain the service charges, and if that means forfeiture, then that's what the freeholder has done.

            One assumes that the relationship between the freeholder and RTM is a good one, and it has already beeen said that the freeholder will make good the service charge arreas, therefore everyones happy.

            And not a legal answer, but RTM would have instructed freeholder to obtain service charge arrears, he has, and receive £ 600,000 which will be realised upon sale, therefore payment should arrive when flat is sold.

            LHA's legal thoughts on this thread would be welcome.

            Comment


              #7
              Welcome back flatpackman.

              Its a good question.

              1. You have to ask the RTM and the MA why they have been sitting on their hands and not recovered arrears earlier or talked to the freeholder earlier or contacted any lender

              2. As of the date of possession the freeholder is responsible under CLRA 2002 to pay for service charges, or more correctly any shortfall in what the RTM can collect from those with leases. Therefore the agent must pro rate the current charge and invoice him, although there is no need for the statutory information to be provided of course.

              3. As to older arrears the freeholder has no liability for these and while that opens the door to an interesting legal discussion, for your purposes the arrears due under the lease, as was, still stand to the flat owner and can be recovered. Have an enquiry agent locate them and steam on.

              I have no doubt that the court will feel that the freeholder having gotten the flat should not pursue arrears however as few cases of this occur, it will give them pause. However taken in the round when shorter leases are forfeited, judgement still includes o/s rent and of most relevance, service charge. That it is an RTM will no doubt give the judge some head scratching while it figures what you are
              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

              Comment


                #8
                Originally posted by leaseholdanswers View Post

                I have no doubt that the court will feel that the freeholder having gotten the flat should not pursue arrears
                But was not the forfeiture of the flat, to obtain the service charges owing ? as that is what the forfeiture action would be for, to get payment of the service charges, and if not forthcoming, to forfeit the flat, to sell, to GET the service charges owing ?

                If so, the freeholder owes the RTM company the service charges, otherwise there is no point in forfeiting the flat for unpaid service charges if the service charges don't get paid from the proceeds of the sale of the flat. ! !

                Goods were received in lieu of service charges, namley a £ 600,000 flat ?

                Comment


                  #9
                  One of the difficulties explaining forfeiture is that the consequences are so one sided that it almost defies logic. The landlord in this case gets to keep the flat, he may sell it or keep it, but if he sells it he gets to keep the entire proceeds.

                  If the freeholder brought his action for forfeiture based on monies owing to the RTM I wonder if it can be implied that the landlord would pay over those arrears if forfeiture proved successful. It must have been a reasonable expectation that in return for supply information to the Landlord that in the event of forfeiture the landlord would reimburse the RTM. The landlord would have had to liaise with the RTM to get the relevant information and therefore there would have been correspondence passing between them.

                  However if the landlord brought his action for service charge arrears owing to him (and not to the RTM) then in the absence of any specific piece of legislation (which I am not aware of) then the RTM have no grounds for recovering their arrears from the Landlord.

                  An RTM should have been advising the freeholder of any arrears that are more than 90 days old, therefore if they failed to do this then the members of the RTM may have an action against their agent.

                  Comment


                    #10
                    Its legislation in search of a determination. Service charge collection is a management function stripped of the freeholder and forfeiture a remedy available to the RTM.

                    It would require the T or C to determine that under the Act that the RTM asks and the FH agrees, to accept that role to pursue forfeiture. If there has been no real communication or discussion it is as said an opportunity lost.

                    That said there is nothing in the Act that aware of the arrears, even if there is not GR owed or other breach with which the freeholder is directly concerned with, that the FH cannot act opportunistically especially if aware of circumstances where an owner is unlikely to challenge the matter.

                    As it has been empty for 3 years I suspect that the amount owed is ground rent and time and amount has allowed action to be taken, rather than service charges.

                    It seems like another case of poor advice from the agent on this matter and an RTM that yet again asumes that it can fund itself from service charges alone.
                    Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                    Comment


                      #11
                      Originally posted by leaseholdanswers View Post
                      Its legislation in search of a determination. Service charge collection is a management function stripped of the freeholder and forfeiture a remedy available to the RTM.
                      This is not correct. Forfeiture is a remedy only available to the freeholder. If the RTM have a service charge debt, and if approaching any mortgagee fails to produce a result, then they must go to the freeholder. The freeholder can then request a full indemnity of costs from the RTM company and then take legal action against the defaulting lessee threatening forfeiture

                      Comment


                        #12
                        there is a missing not in the post as without it it is not so much wrong as a contradictiry sentence. sorry folks.

                        as it goes in to explain forfeiture is if course available to the rtm by going into partnership. with the fh.
                        Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                        Comment


                          #13
                          The freeholder has advised that the RTM can take action for the arrears against the lessee even though they no longer own a lease as the forfeiture does not write the debt off . The freeholders will not be taking such action on their arrears as it may imply waiver

                          The flat has gone on sale for a staggering £725k and the particulars say it is being sold on a 99 year lease. Went on to the land registry website and found that there is no title to this property - there is no Flat 2, so how can the freeholder be selling it with a new 99 year lease!

                          Comment


                            #14
                            The freeholders, it would appear, have had the title closed and are presumably going to have a new lease granted. It would appear that they have successfully forfeited the lease as presumably the land registry would have required quite a lot of evidence before closing the title.

                            Certainly on a commercial lease that following forfeiture the tenant still owes the rent so I suspect that your RTM company will have to start chasing a lessee for the arrears owing to the RTM notwithstanding the lessee has lost an asset worth around 3/4 million pounds. If they fail to recover, then the other lessees in your block will have to make up the shortfall to keep the company solvent.

                            Whilst it may seem that common sense or fairness should direct the landlord to pay when having made a substantial windfall gain there is no legislation which directs that the Landlord has to reimburse an RTM in such cases.

                            Comment


                              #15
                              Originally posted by flatpackman View Post
                              The freeholder has advised that the RTM can take action for the arrears against the lessee even though they no longer own a lease as the forfeiture does not write the debt off . The freeholders will not be taking such action on their arrears as it may imply waiver
                              Which is what i posted so set too While sgclay refers to commercial precedent, I have referred to leasehold having actually forfeited two long leases and more which were 21+ or 7.5 years when granted. getting the flat back including an award for the arrears, though in most cases they were written off.In your case however you don't have the flat and the windfall the freeholder has.

                              He is granting a new lease ans the old one has been forfeited and on re-entry it ceases to exist. Leasehold titles are created out of the freehold title.
                              Based on the information posted, I offer my thoughts.Any action you then take is your liability. While commending individual effort, there is no substitute for a thorough review of documents and facts by paid for professional advisers.

                              Comment

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