In the last Property Matters, we set out briefly the issues and pitfalls of which all landlords and tenants should be aware when considering forfeiture. The Law Commission has recognised that while the current system sometimes operates to prejudice tenants, it can equally be manipulated by tenants to the disadvantage of landlords.
It has therefore proposed that the law of forfeiture should be abolished and replaced with a new statutory scheme. The scheme will introduce a new concept of “tenant default” to define the circumstances in which a landlord may seek to terminate the tenancy before the end of its term. Within the new scheme there will be no need for a lease to contain an express right to forfeit, and the doctrine of waiver will be abolished in its entirety. In this issue, we focus on the proposals which the Law Commission has made for the new statutory scheme.
Tenant default notice: the new Section 146 notice
A landlord wishing to terminate a tenancy before the end of its term because of tenant default will have to warn the tenant of the impending action by giving a written notice, called a “tenant default notice”. This is very like the present notice under section 146 of the Law of Property Act 1925, but the requirement to serve a section 146 notice is subject to exceptions, notably in the case where the default consists of arrears of rent. No such exceptions apply to a tenant default notice. Also, unlike a section 146 notice, the landlord will also have to serve the tenant default notice on any parties holding derivative interests, such as sub-tenants or mortgagees.
The tenant default notice will have to be served within a statutory time limit and will have to set out the details of the breach of which the landlord complains, any remedial action required and the date by which the remedial action must be taken. The landlord will not be able to take any further steps towards terminating the tenancy until the date specified in the tenant default notice has passed.
Termination claim by the landlord: the new forfeiture proceedings
If the tenant does not undertake the remedial action required by the tenant default notice by the date specified within it, the landlord will be able to make a termination claim to the court. If the court is satisfied that there has been tenant default, it will be able to make a variety of orders. Possible orders include:
- A termination order - this will end the tenancy on the date specified in the order.
- A remedial order – this will set out what the tenant must do to remedy the default and the date by which it must be remedied. Such an order will not affect the continued existence of the tenancy, and the landlord’s claim for a termination order will be automatically stayed for a period of three months.
- An order for sale – this will require the tenancy to be sold and the proceeds distributed between the landlord and tenant. Such an order will be most appropriate where the tenancy in question is a significant capital asset, which if made the subject of a termination order, would provide a disproportionate windfall to the landlord.
- A transfer order – this can only be applied for by the owner of a derivative interest, and will transfer the tenancy from the tenant to that owner.
- A new tenancy order - this too can only be applied for by the owner of a derivative interest, and will grant that owner a new tenancy of the whole or part of the demised premises.
Summary termination procedure: the new peaceable re-entry
The scheme provides an alternative procedure for a landlord to terminate a tenancy without the need to apply to the court. The Law Commission intends this alternative procedure to be used only where the tenant would have no realistic prospect of resisting a termination order, or where the premises have been abandoned. The summary termination procedure will be commenced by the landlord serving on the tenant a summary termination notice. That notice will operate to bring the tenancy to an end one month after the notice is served. The tenant may, however, resist the summary termination by applying to the court to discharge the notice. Such an application will suspend the termination of the tenancy until the application has been decided. In order to defend such an application successfully, a landlord will have to show that, had a termination claim been made, the court would have made a termination order and that there is no reason why the termination of the tenancy should not be disposed of summarily. There are a number of restrictions upon the use by a landlord of the summary termination procedure. It will not be able to be used:
- Concurrently with the court-based procedure.
- Where someone is residing in the premises.
- Where the unexpired term of the tenancy is more than 25 years.
- Where the tenancy was granted for a term in excess of seven years and there are three or more years unexpired, and the default is a breach of a repairing covenant.
For six months after the summary termination of a tenancy, the former tenant (or the former owner of a derivative interest) will be able to apply to the court for a “post-termination order”. Although a court will not be able to revive the terminated tenancy when such an application is made, it might order the grant of a new tenancy, or require the landlord to pay compensation This procedure is effectively a statutory replacement for the present ability to apply for relief from forfeiture.
Timetable for reform
The Law Commission has long been campaigning for reform to the law of forfeiture, and attached a draft Landlord and Tenant (Termination of Tenancies) Bill to its full report. That draft Bill embodied the detail of the proposals which we have set out in broad terms above. There was no indication from Tony Blair’s government as to whether it intended to take up the Law Commission’s proposals and it will be interesting to see whether or not Gordon Brown’s government does so. The present law is manifestly unsatisfactory, and the reform proposals represent a principled and logical set of measures, which would leave landlords with an effective remedy while giving tenants appropriate protection. Reforms of this technical nature are never near the top of any government’s agenda, but work their way through the system in the end. These ones are long overdue, and it is to be hoped they find their way into legislation in the near future.
Blacked Out: Preventing Rights To Light
First, some good news for developer landlords: a case decided in their favour. A lease contained a reservation of a right to build on adjoining property, and this was held to prevent the tenant from acquiring a right to light over that property by prescription. To reach this decision, the court adopted a wide construction of the reservation, which did not specifically refer to rights of light, and this is likely to assist developers in the future.
Reservation in lease prevented right to light
The case of RHJ Limited v FT Patten (Holdings) Limited (1) and FT Patten (Holdings) Limited (2) related to an office block in Liverpool city centre. The 99-year lease contained the following reservation to the landlords:
The full and free right to erect, build, rebuild and/or alter as they may think fit, at any time and from time to time, any buildings or bays or projections to buildings on any land adjoining the demised property, and/or on the opposite sides of the adjoining streets and access ways.
The tenant claimed a right to light over the adjoining land by prescription, pursuant to section 3, Prescription Act 1832. Under section 3, where there has been actual enjoyment of continuous light for 20 years without written consent or agreement, then a right to light is acquired.
It was common ground between the parties that the tenant had enjoyed 20 years of light without interruption. The question for the court was whether the reservation in the lease constituted a written agreement which would prevent the tenant from acquiring a right to light.
Mr Justice Lewison concluded that it did. He made a distinction between two types of clauses:
- Clauses which deal with the position as it existed at the date of the lease will only prevent the creation of easements by express or implied grant, and defeat any claim by a tenant that the landlord had derogated from his grant by building on the adjoining land.
- Clauses which deal with what might happen in the future will prevent the creation of easements by prescription if the works authorised by the clause would interfere with light.
He decided that for the latter type, it was not necessary for the clause actually to use the word “light” (although he noted that it would be better if it did).
An important feature of this particular clause was that the landlord’s right to build was unfettered (“full and free” and “as they may think fit”), which supported the interpretation that it could not be thwarted by a right to light.
Injunction remains the primary remedy
While the above case demonstrates an approach which is helpful to developers, it is worth emphasising that everything must depend on the wording used in any individual case. It is worth also briefly reminding ourselves of the case of Regan v Paul Properties DPF No 1 Ltd, which has been commented on previously in Property Matters, but which serves as a harsh reminder of the potential consequences of infringing rights to light. In this case, the Court of Appeal acknowledged the hardship to the defendant developer of granting an injunction, but nevertheless considered that it was necessary to protect the neighbour’s right to light.
The diminution in value of the affected property if the building went ahead was only about £5000, and Mummery LJ acknowledged that this was considerably less than the cost to the developer of demolishing what had already been built and changing its plans. However, in all the circumstances of the case, he concluded that the court should not “force the claimant to accept compensation for losing the light in respect of his home”.
The court stated that an injunction will generally be the primary remedy for infringement of a right to light. Developers cannot assume that they can overcome rights to light by paying financial compensation to affected neighbours.
Notices under the Rights of Light Act 1959
The lesson is that developers are well advised to try to resolve rights to light issues at an early date. One method which is sometimes effective is the service of notices under the Rights of Light Act 1959.
As mentioned above, the first hurdle to acquiring rights of light by prescription under the 1832 Act is 20 years’ continuous light. Where the neighbour is in the process of acquiring the 20 years’ light, the 1959 Act works by the creation of a notional obstruction of light, and so prevents acquisition of a right under the 1832 Act.
The procedure is as follows:
- The developer instructs a specialist rights of light surveyor to draw up plans specifying the dimensions and position of the notional obstruction.
- The developer must then file an application with the Local Land Charges Registrar.
- The Registrar directs what notices should be given to those affected by the notional obstruction (the applicant usually supplies the Registrar with a list).
- The developer must serve all the notices and inform the Registrar when this is done. The Registrar then issues a certificate confirming adequate notification.
- The developer must apply to register the notice as a Local Land Charge, upon which it operates as a deemed notice to everyone for 21 years, and has the effect of a deemed obstruction to the neighbour’s light from the date of registration.
- A notice can be challenged within one year of registration (because under the 1832 Act light is “continuous” unless interrupted for more than a year). To challenge it, the neighbour has to do what he would if the notice were an actual, physical obstruction: go to court on the grounds of an actionable interference with his right to light.
There is also an emergency procedure where a potential developer realises that a neighbour will shortly complete 19 years’ enjoyment of light (and so it will soon be too late to establish the 12-month interruption before the acquisition of the right is complete). The developer should lodge an affidavit with his application, setting out the reasons which make the case one of exceptional urgency. The registrar may then issue a temporary certificate giving the applicant a maximum of six months to apply for a definitive certificate.
If the neighbour already has 20 years’ use, he can of course object to the notice. Indeed, a developer might use notification under the 1959 Act even if he knows there are neighbouring owners who could object. This tactic might be used to flush out any disputes in advance of the building works, or even just as a gamble, in the hope that the neighbouring owner is careless and fails to dispute the notice.