Section 146 Notice

[Bexn]

Hi all
I wonder if you can help me.
I'm a landlord for a block of flats and have one particular lessee who has paid no ground rent, insurance or sinking fund contributions for the last few years.
I've chased and chased, written to his mortgage provider but haven't got anywhere. No correspondance has ever been received.

Suddenly we have received a letter from his mortgage company asking for details of outstanding amounts. We did this but they have written back asking for a Notice of demand for the ground rent to be issued and also a Section 146 notice fo the outstanding service charges.

First of all - my solicitors fee's have been quoted for doing this for me and are huge so I need to do it myself

Secondly - where can I get a standard form to be able to issue these?
Looking through this forum it seems that a valid section 146 notice needs to have the customers agreement or admission of the charges. I am not likely to get this at all... any ideas and plain english on what this means?

Thank you

[jeffrey]

First, have you even submitted valid demands for:
a. ground rent [s.166 of 2002 Act]; and
b. service charge [s.18-s.30 of LTA 1985]?

[Bexn]

the S166 - is that different from the Notice of Demand for the ground rent that they have asked for?
As for the service charge s.18-s.30 of LTA, no-one has mentioned this to me yet.

in essence - no, none have been issued yet

[jeffrey]

As you've not validly demanded anything, you cannot serve a s.146 Notice nor lodge any proceedings. Your lessee knows more than you do.
Er, how much do you understand the role and responsibilities of a freehold reversioner? I think that you need an urgent learning experience.

[andydd]

the S166 - is that different from the Notice of Demand for the ground rent that they have asked for?
As for the service charge s.18-s.30 of LTA, no-one has mentioned this to me yet.

in essence - no, none have been issued yet

As Jeffrey has pointed out, your knowledge in this area does seem somewhat lacking, if I was your tenant I probably wouldnt be paying you anything either, as you have failed to comply with current law, you may well get a shock too if you try and recover costs from more than 18 months ago.

Andy

[animal]

Better head on over to lease advisory service (http://www.lease-advice.org/) and do some reading...

[Bexn]

First, have you even submitted valid demands for:
a. ground rent [s.166 of 2002 Act]; and
b. service charge [s.18-s.30 of LTA 1985]?

Going back to this comment.... trying to research the LTA 1985 i've come across this.... The Landlord and Tenant Act 1985 refers to all short leases for residential property and tenancies agreed for a period of less than seven years i.e. Assured Shorthold Tenancies. Short leases cover periodic tenancies where the tenant has no fixed term agreement but rents the property on a weekly or monthly basis.

The person responsible for paying a service charge and the ground rent 'owns' the property, he has a lease with us for the ground area and the sinking fund/management company.

Does this valid demand count/appropriate for this situation?......

as for the other comments on my lack of knowledge.. thanks, not helping!

[jeffrey]

No-one is yet responsible for paying a service charge and the ground rent, as you seem not to have complied with legal requirements.

[Bexn]

sorry, i'm still not understanding this fully.
Why is he not responsible for paying the ground rent and service charges? (these are mentioned in his lease and he would have been aware of them when he brought the property).

By sending him invoices each year with all the correct information on them and him not paying them, where have I not complied legally?

[jeffrey]

(Sigh) Please re-read posts #2/3.

[quarterday]

I think wot our learned friend jeffrey is saying is that if your requests for payment are not in proscribed form then strictly speaking then are not yet payable, irrespective of whether the statutory obligation to use proscribed form came in after the lease was granted!

This was designed to prevent lessees being charged moneys unnecessarily by unscrupulous freeholders.

Ironically, the cost of producing these various notices are in practice almost certainly recoverable from the leaseholders and thus the legislation as is so often the case has achieved in many cases at least precisely the opposite effect of the intention!

Advice : take all your receipts invoices copy leases etc and appoint a competent managing agent and tell him to collect the service charges and do all things necessary such that outgoings are recoverable and rents are paid.

Your most important function as landlord, arguably, is to make sure the buildings remain insured.

In the good old days, when lessees were selling or remortgaging every few years there would be a convenient opportunity to collect your arrears as a freeholder at each dealing in the lease as the account had to be cleared. But with the volume of transactions down it can be a longer wait!

[jeffrey]

'Prescribed'!

[andydd]

Bexn.

One must ask how you came to be a landlord without having any knowledge of the Landlord & Tenant Act, this act has been considerably tightened up in recent years mainly as a result of unscupulous landlords and a landlord must be very careful to follow the exact procedures otherwise they may find themselves seriously out of pocket.

As pointed out you (and your tenant) have to comply with both the lease and statute law, so you must keep yourself (or employ someone) upto date with statute law (and the numerous changes).

For example..the points mentioned by Jeffrey (and others)

S166. If this isn't complied with, the lessee may withhold payment of ground rent.

The same applies to S21B regarding Service Charges.

Some landlords have got themselves in a right mess but spending thousands on building works only later to discover they havn't complied with S20 consultation notices and that they cannot recover the large amounts they have spent.

I personally am disputing many hundreds of pounds that my landlord is demanding and they are a large company with lots of experience and money to spend on surveyors and solicitors, although they too have got it wrong.



Andy

[Bexn]

Andydd and quarterday, thank you for your responses, it has helped.
A little back ground information, the company I work for built the buildings and had previously employed a managing agent, when I discovered that he was hammering down doors in the middle of the night, verbally abusive to my shop tenants and the owners of the flats I immediately fired him and have since been left with the running, hence my limited knowledge.
I totally agree to find another managing agent but was concerned I could be on a tight time limit as it’s a mortgage company that’s asked for these notices, they wont give info on why they want them, I can only assume he’s trying to re-mortgage or he’s defaulting.

Thanks for the comments again guys, I shall research more and find myself a new agent.

Quick note to Jeffrey, some constructive comments and help is all I asked for, not ‘sigh’ remarks and definitely not petty spelling correction posts!

[jeffrey]

Quick note to Jeffrey, some constructive comments and help is all I asked for, not ‘sigh’ remarks and definitely not petty spelling correction posts!
I'll take that as a 'thank-you', shall I, since you don't bother with such courtesies?

[andydd]

Andydd and quarterday, thank you for your responses, it has helped.
A little back ground information, the company I work for built the buildings and had previously employed a managing agent, when I discovered that he was hammering down doors in the middle of the night, verbally abusive to my shop tenants and the owners of the flats I immediately fired him and have since been left with the running, hence my limited knowledge.
I totally agree to find another managing agent but was concerned I could be on a tight time limit as it’s a mortgage company that’s asked for these notices, they wont give info on why they want them, I can only assume he’s trying to re-mortgage or he’s defaulting.

Thanks for the comments again guys, I shall research more and find myself a new agent.

Quick note to Jeffrey, some constructive comments and help is all I asked for, not ‘sigh’ remarks and definitely not petty spelling correction posts!


Actually I think you'll find that Jeffrey has in this thread and in most others been spot on and told you far more in his brief replies than I or most other ever could.

Pointing you to read S166 of CALRA and S21 of L & T Act is the most important advice you'll recieve, if you don't comply with them you may never recieve a penny.

What mortgage company is involved ?. And why is the onus on you to reply quickly ?. Sounds a bit strange.

Andy

[RAH82]

Hi all
I wonder if you can help me.
I'm a landlord for a block of flats and have one particular lessee who has paid no ground rent, insurance or sinking fund contributions for the last few years.
I've chased and chased, written to his mortgage provider but haven't got anywhere. No correspondance has ever been received.

Suddenly we have received a letter from his mortgage company asking for details of outstanding amounts. We did this but they have written back asking for a Notice of demand for the ground rent to be issued and also a Section 146 notice fo the outstanding service charges.

First of all - my solicitors fee's have been quoted for doing this for me and are huge so I need to do it myself

Secondly - where can I get a standard form to be able to issue these?
Looking through this forum it seems that a valid section 146 notice needs to have the customers agreement or admission of the charges. I am not likely to get this at all... any ideas and plain english on what this means?

Thank you

Hello Bexn,

I will answer this in three posts for ease of reference (ground rent, service charge and forfeiture) and I will try to keep it as brief as possible, while covering the relevant law.

Residential freehold reversions are very heavily regulated and if you are not familiar with the law, you will be caught out. I would strongly advise that you seek independent legal advice from a solicitor who is well acquainted with leasehold property.

GROUND RENT

In future, make sure that all future rent demands are sent out in the prescribed form: the form of ground rent demand prescribed by the Landlord and Tenant (Notice of Rent) (England Regulations) 2004, pursuant to section 166 of the Commonhold and Leasehold Reform Act 2002. If you google "Landlord and Tenant (Notice of Rent) (England Regulations) 2004" you will find the relevant form annexed to the order.

The ground rent demand must contain your name and address, in order to comply with section 47 of the Landlord and Tenant Act 1987.

CLRA 2002 itself is written in straight forward and easy to understand, lay terms, so I shall quote the relevant parts verbatim:

"A tenant under a long lease of a dwelling is not liable to make a payment of rent under the lease unless the landlord has given him a notice relating to the payment; and the date on which he is liable to make the payment is that specified in the notice."

The notice must specify:

1. the amount of the payment,

2. the date on which the tenant is liable to make it, and

3. if different from that date, the date on which he would have been liable to make it in accordance with the lease.


The date on which the tenant is liable to make the payment must not be:

1. either less than 30 days or more than 60 days after the day on which the notice is given, OR

2. before that on which he would have been liable to make it in accordance with the lease.

Lastly, the notice must be in the prescribed form (see above), and may be sent by post. If the notice is sent by post, it must be addressed to a tenant at the house/flat unless he has notified the landlord in writing of a different address in England and Wales at which he wishes to be given notices under this section (in which case it must be addressed to him there).

It is very important that you comply with all of the above criteria, or the ground rent will not payable!

Forget forfeiture for the time being (see post 3 below).

....

[RAH82]

The Landlord and Tenant Acts 1985 and 1987 contain the basic regulatory framework, followed by a series of later (more detailed) regulations designed to expand upon and give effect to the basic provisions.

It is extremely important that you recognise and abide by these provisions; failing which you may find that service charges are not payable (because they have not been lawfully demanded); or, worse, that you have committed a criminal offence!

1. Firstly, with some limited exceptions, you may only recover what the lease expressly allows you to recover. Any ambiguity in the lease will be construed against you.

2. If any of the relevant costs taken into account in determining a service charge were incurred more than 18 months before a demand for payment is served on the tenant, then the tenant is not liable to pay so much of the service charge as reflects the costs so incurred.

3. You are obliged to send each of your tenants statements of account relating to each accounting period. These statements of account must be certified by a suitably qualified accountant and must deal with service charges of the tenant and the tenants of dwellings associated with his dwelling; relevant costs relating to those service charges; the aggregate amount standing to the credit of the tenant and the tenants of those dwellings at the beginning and end of the accounting period; along with any other related matters.

4. Service charge demands must be accompanied by a summary of rights and obligations (another prescribed form), which you can find on the LEASE website (sorry, I can't post links yet). If service charge demands are not accompanied by this form, the service charges to which that demand relate will not be payable.

5. Service charges are only payable to the extent that the costs to which that service charge relate are reasonable; the services or works to which the service charge relates are of a reasonable standard; and, where a service charge is payable in advance, to the extent that any such advance payments are no greater than is reasonably necessary in the circumstances.

6. Even if services charges are properly payable under the terms of the lease; reasonable in amount; reasonably incurred; and relate to works and services that are of a reasonable standard, they will not be recoverable above the statutory maximum if they relate to “qualifying works” or “qualifying long term agreements” to which the regulations apply and the relevant consultation process has not been complied with or dispensed with by a Court or Tribunal.

Any works on a building or any other premises which result in the total contribution of any one tenant (towards those works) being greater than £250 will trigger the requirement to consult with the tenants before carrying out that work. While you don't necessarily have to agree with or act on the tenants comments, the consultation process is quite lengthy and complex (and certainly beyond the scope of this post). The long and the short of it is, if you're likely to spend a lot of money on one project: get legal advice, immediately. An LVT has the power to dispense with the requirement in the case of a genuine emergency.

The same applies to any long term agreement with a service provider for a period exceeding 12 months, but the relevant threshold in the case of qualifying long term agreements is £100, not £250, per tenant, in any one accounting period.

...

That's just for starters ...

Leasehold Valuation Tribunals have the power to determine the extent to which a service charge is payable and/or reasonable. If you apply to the County Court to recover service charge arrears and the claim is disputed, the matter will probably be referred to the LVT (the supposed specialists).

[RAH82]

Don't even think about forfeiture (terminating your tenant's lease and taking possession due to a breach of a term of the lease), unless you've complied with the above requirements.

You are extremely unlikely to actually achieve forfeiture, even if you do comply with the relevant statutory requirements (see below), but serving a section 146 notice and/or applying to the court for an order for possession can be a useful means of "encouraging" the tenant (or the tenant's mortgage lender) to pay up.

You cannot forfeit a lease, unless the lease contains a forfeiture provision (most do, but check).

With the exception of non-payment of rent (no notice required), you begin the process by serving a section 146 notice, informing the tenant that they are in breach of the lease and asking them to rectify the breach (if possible), failing which you will exercise your right to forfeit the lease. If they do not remedy the breach, you then apply to Court for an order for possession (there is a protocol to follow in such cases and you would need to instruct a solicitor).

You cannot forfeit a lease for non-payment of a service charge, unless an LVT or Court have determined that the service charge you are claiming is payable; or the tenant has admitted that it is payable. Similarly, you cannot serve a section 146 notice in relation to a breach of the lease unless that breach has been determined by a Court or LVT, or the tenant has admitted the breach.

The tenant can (and probably would) apply to the Court for relief from forfeiture and the Court would almost certainly grant relief, although in return the Court would expect the tenant to come to some arrangement, for example, to pay off outstanding arrears.

A strategy I often use, where I am sure the service charges will not be disputed, is to apply to the County Court using the money claim online facility; obtain judgment in default; and then serve a section 146 notice on the tenant and the tenant's lender. The lender often pays up at this point to protect their security.

Good luck.

[RAH82]

I just noticed the date of the OP ... I do apologise for bumping an old thread. Hopefully, this will be useful to someone in any event.

Feel free to move the above posts to a more relevant location if you wish, mods.

Also, I noticed a typo in one of the above posts. The correct citation is the "Landlord and Tenant (Notice of Rent) (England) Regulations 2004". The parentheses were in the wrong place.

[andydd]

A strategy I often use, where I am sure the service charges will not be disputed, is to apply to the County Court using the money claim online facility; obtain judgment in default; and then serve a section 146 notice on the tenant and the tenant's lender. The lender often pays up at this point to protect their security.



Surely this is a bit dodgy ?. What makes you think you'd obtain judgement by default ?...Does the tenant just ignore any court letters sent to him ?

My freeholder appeared to go down the same route but Its unclear whether it is the correct legal process, surely the process should be either to make a pure monetary claim or to follow the S146 Forfeiture route by serving a S146 warning and then getting a court or LVT to determine a breach, using a mish-mash of the two appears dubious to me.

A lot may also depend on the action of the lender, some may pay up straight away without even refering to the tenant, otherwise will contact the tenant to seek his views.

Andy

[RAH82]

Surely this is a bit dodgy ?. What makes you think you'd obtain judgement by default ?...Does the tenant just ignore any court letters sent to him ?

Well, it is not always a good strategy, which is why I qualified my statement.

I have to be sure, as far as I can be, that there is no genuine dispute before embarking upon this course of action and of course I have to make sure that my client has grounds and is willing to defend if necessary.

I always make sure that the service charge is properly payable, that the level of service charge is not manifestly extortionate, and that the appropriate statutory procedures and requirements have been adhered to.

I will then look for tell tale signs of disputes and disagreements as to the level of service charges and/or standard of services. Finally, I will ask the landlord and agent (if any) to confirm in writing that all the correspondence details are correct (by providing notice of assignment/change of address forms if possible).

If numerous demands have been sent to the tenant, but the tenant has not responded at all, the chances are that the tenant is simply not paying. I always check, of course, by writing to the tenant and offering them the opportunity to explain why they have not been paying their service charges. This is followed by a further letter (a "letter before claim"), and then 14 - 28 days later, if I still haven't received a response, I will issue proceedings.

With these cases (where there is no real dispute) my experience is that 9 times out of 10 the claim is not disputed and you either get judgment in default, or by admission (essentially, the tenant either ignores the claim altogether or admits it). I adopted this approach recently in connection with a large estate in the West Midlands, and out of 25 applications, only one was actually defended.


My freeholder appeared to go down the same route but Its unclear whether it is the correct legal process, surely the process should be either to make a pure monetary claim or to follow the S146 Forfeiture route by serving a S146 warning and then getting a court or LVT to determine a breach, using a mish-mash of the two appears dubious to me.

You are not legally permitted to serve a section 146 notice in respect of service charge arrears, unless:

(a)it is finally determined by (or on appeal from) a leasehold valuation tribunal or by a court, or by an arbitral tribunal in proceedings pursuant to a post-dispute arbitration agreement, that the amount of the service charge or administration charge is payable by him, or

(b)the tenant has admitted that it is so payable.

Section 81 of the Housing Act 1996 (as amended by section 170 of the Commonhold and Leasehold Reform Act 2002)



A lot may also depend on the action of the lender, some may pay up straight away without even refering to the tenant, otherwise will contact the tenant to seek his views.

This is true. A lot will depend on the extent of the debt, the loan to value, the lender etc.

However, I tend to find this method to be quite productive, on the whole.

[Tulula]

There seems to be some debate as to whether a default judgment constitutes a final determination for the purposes of s81, are you aware of any recent case law that might clarify that? The Southwark v Tornaritis and Hillbrow v Alogaily decisions were both in the county courts I believe, and came to opposite conclusions.

[RAH82]

You are absolutely right, the Courts have yet to reach a satisfactory conclusion about this.

To my knowledge, the matter has not yet reached the High Court or Court of Appeal, but counsel has previously advised of a realistic chance of success and my approach has not been challenged to date (I appreciate that it may well be at some point in the future).

Naturally, I advise my clients about the ambiguity in the legal position, but mostly they are happy to take their chances, given the speed and cost-effectiveness of this approach.

Hillbrow v Alogaily is the more recent decision, of course, but arguably the tenant is provided with ample opportunity to present a defence, in the event of a genuine dispute. The absence of a defence in itself provides grounds for obtaining a judgment, which can be enforced, so why should this not be sufficient to amount to a "determination", for the purposes of section 168 of the CLRA 2002?

I'd be happy to take a stab at it ... we shall see :)

[leaseholdanswers]

Hillbrow v Alogaily is the more recent decision, of course, but arguably the tenant is provided with ample opportunity to present a defence, in the event of a genuine dispute. The absence of a defence in itself provides grounds for obtaining a judgment, which can be enforced, so why should this not be sufficient to amount to a "determination", for the purposes of section 168 of the CLRA 2002?
I'd be happy to take a stab at it ... we shall see :)

As I understand it the default judgement is an administrative act, the merits of a claim are not considered, putting the burden back into the respondent's hand to appeal or challenge.

I suspect that the circumstances can have much to do with it, a well known firm and representation can reassure the Court that the case and service is in order, while a less than reputable firm or a landlord/claimant that inspires little confidence might result otherwise.

I am surprised that they have not refered these to the LVT as it is within their discretion and which would put the onus on the claimant to prove their case under S81, leading to the court making a simple judgement on the basis of the LVT decision.

As to non response I have found that reassuring the Court of the respondents presence, through an enquiry agent, assists with those few cases we deal with eg " no reason to believe that they are not residents/ are in in residence and have chosen to ignore the claim"

[Tulula]

RAH82, I sincerely hope you are right since I use the same strategy!

[leaseholdanswers]

RAH82, I sincerely hope you are right since I use the same strategy!

Neither of you are alone in using this strategy :)

The mortgagee simply adds it on to the debt, and if the claim form is ignored, the chances of a defence, an appeal, or seeking relief, are extremely unlikely.

The cost of appeal is very often far more than the arrears ( assuming prompt action is taken on arrears).

[house72]

Thank you RAH82,

I really appreciate all the detailed information and advise you have provided above, it is exactly what I was looking for!
I recently received a decision in my favour at the LVT, re; several breaches to the lease and non payment of service charges, by the lease holder.
Since then the Leaseholder has ignored my request to comply with the LVT judgement and to pay those service charges. I was considering what to do next and thanks to your information I can see how to proceed by serving a 146 notice upon the leaseholder and their lender.

My question is:
Up until now I have undertaken all this work by myself, to keep the costs manageable.
If I now hand the ongoing work over to a solicitor- (to serve the 146 notice and proceed to Court if needed, to correspond with Leaseholder and lender etc) would my legal costs be recoverable from the Leaseholder? (The LVT did not grant either party any relief from legal costs.)
In case you ask, I manage the building myself, there is no management company.

Lease background:
The Lease does make provision for the Freeholder to repossess the premises in the event of a breach.
The Lease also makes provision for making charges toward the Freeholders expenses incidental to management responsibilities.

Thank you

[leaseholdanswers]

Might I suggest that the correct course of action is for your solicitor to write to the lender and the leaseholder as a letter before action givng them the chance to pay up, and for the lender to protect their security.

Emphasis should be placed on that there was a dispute which has been resolved at a tribunal discharging your oblgiation under Section 168 of the Common hold and Leasehold Reform Act and section 81 of the Housing Act 1996,and that your next step is that you are able to serve a section 146 or forfeiture proceedings ( if SC is reserved as rent)

[house72]

Leaseholdanswers-
Thank you, that seems a good idea, as I have already written to the leaseholder myself (along the same lines) but to no avail.

My question is about whether my legal costs in engaging a solicitor to proceed in this way (to recover s.c. owed and enforce the covenants which have been breached) will be recoverable by me, either under law and under the lease, or both? I am worried about finding myself in a position where my legal bill is as much as the s.c. I am trying to recover!

Below are the relevant clauses in the lease;
The Tenant covenants with the Lessor:

' To indemnify the Lessor against all costs, claims, demands and expenses arising out of all or any further breach or non-observance thereof'

'To pay the Tenants three quarters share of the cost of the Lessors of;
......the renumeration of employees of the Lessor in dealing with the performance and observance in respect of the building of the obligations of the Lessor and the rent administrative office and other expenses all incidental to the incorporation management and performance of the Lessoras aforesaid of the said obligations.'

So, does either clause above serve my purpose? Furthermore, are my legal costs recoverable by law?
Some advise would be much aprreciated, thanks.

[leaseholdanswers]

Well ok but the point I was making that you are required to write a letter before action to reassure the court that your have exhausted other approaches. It is relatively cheap and I very much doubt that faced with the LVT decision, which resolved the dispute, that any mortgagee will ignore you.

If you do have to proceed then the clause appears to indemnify you, as long as the costs are reasonable, and when invoiced contain the summary of rights for admin charges.

Your solicitor will know that, or jolly well should know.

[house72]

Thanks Leaseholdanswers,
I will proceed in this way. My first task will be to find a solicitor with suitable leasehold experience- I have had a bad experience before, using someone without sufficient expertise, which is why i am now so 'hands on' with this matter.

Hopefully I will get the desired outcome via the lender, but if not....your comment concerning admin charges- are you advising that leaseholder payment of my legal costs should be demanded as an administrative charge? For this lease, admin charges are demanded annually. If this is the best course of action, I can do this. However I am concerned (due to long experience) that the very predictable leaseholder will refuse to pay this charge and I will then have to commence the LVT process again, to get another determination in my favour.
As this is such a slow process-are there is any other courses of action to claim for my legal costs, which I could consider?

I realise that I am thinking several steps ahead and if the lender approach works, the legal route will possibly end there. But in any case there will still be some solicitor costs to claim and I would like to have some knowledge so I can approach a solicitor with some understanding of what they should know about the subject.

Many thanks (also for the reminder about admin charge summary!)