What can happen when a property owner fails to pay their landlord’s service charge:

Where you own a flat, you will have a landlord to whom ground rent and service charge must be paid. The case of Caroline Gibbs v Lakeside Developments Limited is a extreme example of what happens when you do not pay those charges.

In this case, Mrs Gibbs owned a flat in London, which she held on a 999 year lease. She bought the flat in 1986 and in 1990 moved to live and work in Hong Kong. She retained the flat and gave the managing agents her parents’ address for the service of correspondence.

For reasons which are not entirely clear, from 2006 onward Mrs Gibbs failed to deal with correspondence from the managing agents and started to accrue arrears of ground rent and service charge, and eventually accumulated a debt of roughly £1,400.

In September 2009 the landlord decided to force the matter, and obtained a court judgment for the debt. Having obtained this court order, and the debt still having not been paid (Mrs Gibbs claiming not to have known of the action), the landlord issued a further court application to forfeit the lease.

Most leases have a ‘forfeiture clause’, allowing the landlord to terminate the lease where the tenant fails to comply with it. Very often, the landlord is not able to do this without first obtaining a court order, which is intended to give a measure of protection to the tenant, but not if he/she fails to turn up to the hearing, as in Mrs Gibbs’ case.

It is unusual to hear of a landlord trying to forfeit a lease of residential premises, given the tenant/owner will be concerned not to lose such a valuable asset, but in this case, forfeiture proceedings were issued and a court order was granted.

The landlord took back possession of the flat in April 2010 and started marketing it in June 2011. It was not until the following month that Mrs Gibbs finally realised what was going on, when she learnt her property was for sale! She objected to the sale but in any event the landlord sold the property in December of that year (the buyer having no knowledge of the background).

The litigation which ensued was long and, as described by the judge in his decision “tortuous”, and indeed this case was reported in the legal press in 2016 in relation to another procedural matter, but the point in hand was whether Mrs Gibbs could challenge the landlord’s forfeiture. She claimed that the landlord had been unjustly enriched, but the court held that there can be no claim for unjust enrichment where property (in this case, her lease) was extinguished by an order of the court.

It is possible to apply to court for relief from forfeiture, and the court has a wide discretion as to whether to grant such relief, but any such application usually has to be made within 6 months of the court order granting possession, and in this case Mrs Gibbs had left it too late: she applied for relief from forfeiture some 18 months after the original court order had been granted.

Mrs Gibbs’ ability to lose track entirely of what was happening with her flat for some years is perhaps an extreme example, but the consequences for her were severe. She lost her flat, and has (no doubt) a very large legal bill to pay, and all because she did not pay £1,400 worth of service charge arrears.

Luke Cain is a solicitor in the Property department at Barker Gotelee Solicitors in Suffolk.

Property Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email bg@barkergotelee.co.uk