Section 166 notices

The notice

Prescribed information - forfeiture

Cheerupmate2 Ltd v Calce

[2018] EWCA Civ 2230

Summary

Failure to use up-to-date prescribed information required in a notice pursuant to s166 of the Commonhold and Leasehold Reform Act 2002 did not render the notice invalid.

However, s166 provides that until a valid notice is served rent does not fall due, so the grace period specified in a lease’s forfeiture clause does not begin to run until such service, rather than when the sum becomes payable under the lease.

Facts

C2 Ltd was the landlord of a property let on a long lease to C. Rent was reserved at £2 pa by equal half yearly instalments on 25 March and 29 September each year. The property was originally let as residential but had become and remained commercial subsequently.

The forfeiture clause permitted re-entry for arrears of rent if any rent be “in arrear for the space of two years after the same shall have become due (whether any formal or legal demand thereof shall have been made out or not)”.

On 12 March 2015 C2 Ltd sent C a letter consisting of a notice purporting to be pursuant to s166(1) of the Commonhold and Leasehold Reform Act 2002, requiring C to pay arrears of rent in the sum of £11.00 “payable in respect of the period” from 25 March 2010 to 25 March 2015.

The printed form contained a number of prescribed notes (under the Landlord and Tenant (Notice of Rent) (England) Regulations 2004). One read:

“Section 167 of the Commonhold and Leasehold Reform Act 2002 and regulations made under it prevent your landlord from forfeiting your lease for non-payment of rent, service charges of administration charges (or a combination of them) if the amount owed is £350 or less, or none of the unpaid amount has been outstanding for more than three years.”

That note was up-to-date until April 2011, when the statutory instrument was amended by correction slip to read “…(or combination of them) unless the unpaid amount is more than £350.00 or consists of, or includes, an amount that has been outstanding for more than three years.”

It was therefore not in the prescribed form.

The notice then specified the date upon which the £11.00 would become payable: 20 April 2015.

C2 Ltd purported to peaceably re-enter on 21 April 2015, and the same day applied to close leasehold title with HMLR.

C argued that:

  • The notice was invalid; and/or
  • Sections 166(1), (2) and (4) of the 2002 Act meant that the right to forfeit for £350.00 or less in arrears would not be exercisable until 2 years after service of a valid notice; and/or
  • S167(1)(b) of the 2002 Act meant that the right to forfeit for £350.00 or less in arrears would not be exercisable until 3 years after service of a valid notice.

S166(1) reads:

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.”

Section 166(2) reads:

“(2) The notice must specify—

(a) the amount of the payment,

(b) the date on which the tenant is liable to make it, and

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

and shall contain any such further information as may be prescribed.”

S166(4) reads:

“If the date on which the tenant is liable to make the payment is after that on which he would have been liable to make it in accordance with the lease, any provisions of the lease relating to non-payment or late payment of rent have effect accordingly.”

Finally, S167(1)(b) reads:

“A landlord under a long lease of a dwelling may not exercise a right of re-entry or forfeiture for failure by a tenant to pay an amount consisting of rent, service charges or administration charges (or a combination of them) (“the unpaid amount”) unless the unpaid amount— consists of or includes an amount which has been payable for more than a prescribed period.”

Neither C2 Ltd nor C were legally represented at any stage. C2 Ltd did not argue that Sections 166 or 167 do not apply because the property is no longer residential. The FTT, UT and CA all proceeded on the assumption that those sections do apply, without making a determination in respect of the same.

Issues

  • Was the failure to use the correct prescribed wording in the notice fatal to the notice’s validity?
  • Does s166 set the time running for any time period specified by a forfeiture clause before re-entry can be effected under the terms of the lease?
  • Does s167 preclude a landlord from being able to forfeit until 3 years after service of a valid notice under s166?

First instance

Both the FTT and UT held that C2 Ltd had not complied with the requirement to provide prescribed information. The FTT held that this requirement was mandatory, as it did not allow any notice to be “substantially to the like effect”. The UT instead held that the old wording was insufficiently clear for the tenant to understand it. Both the FTT and the UT held that ss166 and 167 had the effect argued for by C.

Decision on appeal

The Court of Appeal considered Natt v Osman [2014] EWCA Civ 1520 and Elim Court RTM Co Ltd v Avon Freeholds Ltd [2017] EWCA 89. Neither case was considered by the FTT or UT.

In the light of the principles set out in each of those cases, Lewison LJ considered that the failure to use the up-to-date prescribed information wording was not of critical importance, but of secondary importance. This was, inter alia, because the information was:

  • prescribed under statutory instrument;
  • the amendment was made by correction slip rather than substantive amendment; and
  • the real discrepancy was not with the information provided but the clarity with which that information was provided (and the original form had once been considered sufficient by Parliament).

The Court of Appeal decided that it was unlikely that Parliament intended this error to render such notices invalid. C2 Ltd’s notice was held to be valid, notwithstanding the error.

Lewison LJ made clear that s166(1) of the 2002 Act provides that rent does not become due until a valid s166 notice is served. Read together with the remainder of s166, especially s166(4), the effect of the section as a whole is to change the legal effect of provisions set out in the lease relating to late payment of rent (for sums equal to or less than £350.00). That s166(3) refers to when the tenant “would have been liable” under the lease implicitly recognised that the Act is designed to alter the effect of the lease.

It follows that s166(4) starts time running for the purposes of any period of grace given by a forfeiture clause. Only once a valid s166 Notice has been served does that grace period begin. In this lease, that period was 2 years.

For this reason, the re-entry was unlawful. C2 Ltd had to wait 2 years after 20 April 2015 before it could exercise its right to forfeit under the lease.

The Court of Appeal declined to make any obiter comments in respect of the further effect of s167.

Comment

The effect of s167(1) remains undecided. Where a lease has a usual grace period of only 21 days (instead of the two years here) it will be absolutely crucial whether s167(1) is a further fetter on the landlord’s ability to exercise the right to forfeit.

Interestingly, s167(1) uses the term “payable” rather than “due”. This leaves scope for a landlord to argue that the relevant period would be 3 years from the date of payment in the lease, rather than the date of payment in the notice.

If this point is argued in the future, Lewison LJ has already handed the tenant a counter-argument on a plate at [21], in the form of obiter comment on Hoffmann J’s judgment in Tea Trade Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 155.

 

 

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