Service Charge: Whether a Landlord Waived its Right to Forfeit a Lease Where Proceedings are Issued in Respect of Unpaid Service Charge (Clemente v Mindmere Limited – 2024)

Where a landlord issues proceedings seeking a money judgment in respect of unpaid service charges, does the landlord therefore waive its right to forfeit the lease?

The background

In Clemente v Mindmere Limited [2024], the appellant tenant occupied a flat in central London under a long lease which was granted in 1982. The respondent landlord owns the freehold property comprising 67 flats, all of which are held on long leases. Each tenant is a shareholder in the respondent company.

Under the terms of the leases, tenants are required to pay service charges and ground rent. Further, tenants covenant at clause 3(g) to “…pay all costs charges and expenses (including Solicitors’ costs and Surveyors’ fees) incurred by the Lessor for the purpose of or incidental to the preparation and service of a notice under Section 146 and/or 147 of the Law of Property Act 1925 notwithstanding forfeiture may be avoided otherwise than by relief granted by the Court.” 

The respondent, acting by its solicitors, notified the appellant that he owed £13,431.05 in respect of service charges, reserve fund contributions and ground rent. The letter stated that the solicitors were instructed with a view to serving a s.146 notice.

No payment was made by the appellant, and the respondent brought County Court proceedings to recover the service charges and ground rent. The claim was transferred to the First-tier Tribunal following service of the appellant’s defence which challenged the reasonableness and payability of the service charges. The FTT held that the charges were reasonable and payable, before considering the costs of the respondent in the claim.

No application was made in respect of costs under Rule 13 of the Tribunal Procedure (First-tier) (Property Chamber) Rules 2013, but the FTT determined that a sum of £15,563 would be reasonable and payable if demanded by the respondent as an administration charge in accordance with the terms of the lease. The tenant appealed to the Upper Tribunal.

The decision

The tenant appealed the FTT’s decision on the grounds that the respondent landlord had waived its right to forfeit the lease by issuing proceedings in the County Court, meaning that as a result the landlord could not rely on cl. 3(g) to recover its costs.

The Upper Tribunal found in favour of the landlord, agreeing that the claim for a money judgment in respect of unpaid service charges did not result in a waiver of the landlord’s right to forfeit the lease where the charges remain unpaid.

The UT referenced the established principle that, if a landlord demands rent falling due after a breach of covenant by a tenant, the landlord waives its right to forfeiture as it has assumed an action consistent with the continuation of that lease.

A landlord must obtain a declaration that service charges are payable before it can serve a s.146 notice to forfeit a lease. This application may be made in the First-tier Tribunal, but may also be made in the County Court. The UT considered whether an application for a money judgment in the County Court amounted to a waiver of its right to forfeit the lease. The appellant argued that the respondent had chosen to pursue the County Court judgment rather than forfeit the lease.

The UT found no suggestion in earlier case law – in particular that of London Borough of Tower Hamlets v Khan [2022] where the landlord was permitted to recover its costs and where waiver was not an issue – that the issue of County Court proceedings may amount to waiver of the landlord’s right to forfeit. The appellant could not evidence any procedural differences between his case and that of Tower Hamlets, giving the UT no reason to reach any different conclusion.

Advice and action for landlords

This is a helpful decision for landlords pursuing arrears of service charges and ground rents, finding that issue of a claim in the County Court does not prevent a landlord from later forfeiting the lease.

Established case law, including the Court of Appeal decision in Tower Hamlets, makes no suggestion that a County Court claim pursuing a money judgment amounted to waiver of a right to forfeit, and landlords can be reassured that these avenues of recovery remain open to them.