Question 1

Breach of the Lease

Accepted Answer

Q: It has been noted that a leaseholder of the association has rented another leaseholder’s garage for the purpose of a "Home Business" i.e. used for packaging up parcels for delivery. The leaseholder’s flat is the home office for a business and I have checked our "Lease" and note Section 2 (14) states -and not to use or occupy the demised premises or any part thereof for the purpose of any business as defined in Section 23 (2) of the Landlord and Tenants Act 1954. This part of the Act states -in this part the expression "business" includes a trade, profession or employment and includes any activity on by a body of persons whether corporate or incorporate. The business includes receiving orders from customers and packing and posting orders which are made up in the garage. My question is this: A) what are the rights of the Association to allow or disallow the business to continue, and B) if allowed how this will affect the legalities of our Building Insurance should any damage be caused by the use of the premises as a business. I look forward to your advice in this matter. FPRA Legal Adviser Nick Roberts replies: The activity that you describe is very clearly a breach of the terms of the lease, and the association is entitled to require that it cease. Unfortunately, the restrictions on the use of forfeiture which were included in the Commonhold and Leasehold Reform Act 2002 for the protection of long leaseholders do make it rather a long winded procedure for any landlord – including a landlord which is a company owned by the other leaseholders – to attempt to enforce lease covenants. The first thing that you need to do, surprisingly, is to write to the leaseholder to say that you are minded to forfeit the lease, and that accordingly you will not demand or accept ground rent or service charges. YOU MUST THEN MAKE SURE THAT NO DEMANDS ARE SENT OUT OR RENT OR SERVICE CHARGES ACCEPTED. If you do not do this, the forfeiture could be refused on a technicality. You then have to make an application to the First-tier Tribunal (Property Chamber) (F-tT) for a ruling that the lease has been breached. The only alternative to this would be if the leaseholder admitted – in practice this means admitted in writing – that he is in breach of the lease. Armed with a ruling from the FtT that the leaseholder is in breach, you can then serve what is known as a notice under s.146 of the Law of Property Act 1925 notifying the leaseholder that he is breach, and requiring him to remedy it by ceasing the business use within a reasonable period. What is reasonable is for the court to decide but 28 days is likely to be sufficient. If at the conclusion of the period the leaseholder is still running a business in breach of the lease, then, and only then, would you be able to take court proceedings to forfeit the lease. If the forfeiture went through, it would result in a ‘windfall’ to your company, as you would, at the end of the day, have a leasehold flat which you could sell again. It is, however, very unlikely that this would actually happen, as, if it went to court, and the leaseholder was still running the business, the most likely outcome is that the judge would make a possession order, and suspend it for a further period to give the leaseholder a last chance to comply (it would also be conditional on the leaseholder paying up the ground rent and service charge which had accrued in the meantime). The judge would also impress upon the leaseholder how important it is to comply with the terms of the lease if he wishes to retain it. You might be able to take this as far as making an application to the FtT for the preliminary ruling without instructing solicitors. It is quite possible, especially if the leaseholder takes legal advice himself, that he will see that you ‘mean business’ and will comply at that stage. But if he does not, then I would suggest that most people would find it difficult to serve the s.146 notice and start forfeiture proceedings without using a solicitor. The usual provision is included in your lease (see clause 2(22) ) to the effect that the costs of the landlord preparing and serving a s.146 notice are to be paid by the leaseholder, even if relief is granted i.e. forfeiture does not eventually take place. The relevant document is of course the original lease: I have a specimen dated 14 July 1967. The more recent lease extends and modifies the lease, but, apart from this, it largely ‘incorporates by reference’ the terms of the old lease. As to whether this business use puts the Company in breach of your insurance policy, I simply do not know. This will depend on the wording of your insurance policy. At one time insurance policies for blocks of flats would be quite insistent on purely residential use. The growth, however, of working from home may mean that many policies take a more easygoing line. You may find, however, that this is restricted to activities which are entirely administrative (e.g. someone working as some kind of consultant), and that the policy is still worded so as to exclude the position where goods are arriving and being dispatched. If you are in breach (or rather have been put in breach) of your insurance policy by the actions of this leaseholder, you should appreciate that this potentially invalidates your policy even if you then try to claim for a loss which has nothing to do with the unauthorised business use. I would suggest that it would be better from your point of view to advise your insurers of the unauthorised business use, making it clear that you will be taking all steps to ensure that it ceases as soon as possible. j If the insurer threatens to void the policy, then you might need to circumvent the rather long-winded procedure set out above, and apply straight to the court for an injunction requiring the leaseholder to cease the business use immediately. This would very clearly require you to instruct a solicitor from the outset. [Submitted April 2017]

Question 2

Breach of the Lease

Accepted Answer

Q: It has been noted that a leaseholder of the association has rented another leaseholder’s garage for the purpose of a "Home Business" i.e. used for packaging up parcels for delivery. The leaseholder’s flat is the home office for a business and I have checked our "Lease" and note Section 2 (14) states -and not to use or occupy the demised premises or any part thereof for the purpose of any business as defined in Section 23 (2) of the Landlord and Tenants Act 1954. This part of the Act states -in this part the expression "business" includes a trade, profession or employment and includes any activity on by a body of persons whether corporate or incorporate. The business includes receiving orders from customers and packing and posting orders which are made up in the garage. My question is this: A) what are the rights of the Association to allow or disallow the business to continue, and B) if allowed how this will affect the legalities of our Building Insurance should any damage be caused by the use of the premises as a business. I look forward to your advice in this matter. FPRA Legal Adviser Nick Roberts replies: The activity that you describe is very clearly a breach of the terms of the lease, and the association is entitled to require that it cease. Unfortunately, the restrictions on the use of forfeiture which were included in the Commonhold and Leasehold Reform Act 2002 for the protection of long leaseholders do make it rather a long winded procedure for any landlord – including a landlord which is a company owned by the other leaseholders – to attempt to enforce lease covenants. The first thing that you need to do, surprisingly, is to write to the leaseholder to say that you are minded to forfeit the lease, and that accordingly you will not demand or accept ground rent or service charges. YOU MUST THEN MAKE SURE THAT NO DEMANDS ARE SENT OUT OR RENT OR SERVICE CHARGES ACCEPTED. If you do not do this, the forfeiture could be refused on a technicality. You then have to make an application to the First-tier Tribunal (Property Chamber) (F-tT) for a ruling that the lease has been breached. The only alternative to this would be if the leaseholder admitted – in practice this means admitted in writing – that he is in breach of the lease. Armed with a ruling from the FtT that the leaseholder is in breach, you can then serve what is known as a notice under s.146 of the Law of Property Act 1925 notifying the leaseholder that he is breach, and requiring him to remedy it by ceasing the business use within a reasonable period. What is reasonable is for the court to decide but 28 days is likely to be sufficient. If at the conclusion of the period the leaseholder is still running a business in breach of the lease, then, and only then, would you be able to take court proceedings to forfeit the lease. If the forfeiture went through, it would result in a ‘windfall’ to your company, as you would, at the end of the day, have a leasehold flat which you could sell again. It is, however, very unlikely that this would actually happen, as, if it went to court, and the leaseholder was still running the business, the most likely outcome is that the judge would make a possession order, and suspend it for a further period to give the leaseholder a last chance to comply (it would also be conditional on the leaseholder paying up the ground rent and service charge which had accrued in the meantime). The judge would also impress upon the leaseholder how important it is to comply with the terms of the lease if he wishes to retain it. You might be able to take this as far as making an application to the FtT for the preliminary ruling without instructing solicitors. It is quite possible, especially if the leaseholder takes legal advice himself, that he will see that you ‘mean business’ and will comply at that stage. But if he does not, then I would suggest that most people would find it difficult to serve the s.146 notice and start forfeiture proceedings without using a solicitor. The usual provision is included in your lease (see clause 2(22) ) to the effect that the costs of the landlord preparing and serving a s.146 notice are to be paid by the leaseholder, even if relief is granted i.e. forfeiture does not eventually take place. The relevant document is of course the original lease: I have a specimen dated 14 July 1967. The more recent lease extends and modifies the lease, but, apart from this, it largely ‘incorporates by reference’ the terms of the old lease. As to whether this business use puts the Company in breach of your insurance policy, I simply do not know. This will depend on the wording of your insurance policy. At one time insurance policies for blocks of flats would be quite insistent on purely residential use. The growth, however, of working from home may mean that many policies take a more easygoing line. You may find, however, that this is restricted to activities which are entirely administrative (e.g. someone working as some kind of consultant), and that the policy is still worded so as to exclude the position where goods are arriving and being dispatched. If you are in breach (or rather have been put in breach) of your insurance policy by the actions of this leaseholder, you should appreciate that this potentially invalidates your policy even if you then try to claim for a loss which has nothing to do with the unauthorised business use. I would suggest that it would be better from your point of view to advise your insurers of the unauthorised business use, making it clear that you will be taking all steps to ensure that it ceases as soon as possible. j If the insurer threatens to void the policy, then you might need to circumvent the rather long-winded procedure set out above, and apply straight to the court for an injunction requiring the leaseholder to cease the business use immediately. This would very clearly require you to instruct a solicitor from the outset. [Submitted April 2017]

Breach of the Lease

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