Who pays the price?

The Landlord and Tenant (Covenants) Act 1995 fundamentally changed the law regarding rights and liabilities of parties to a lease following an assignment, but those provisions are not retrospective.

It is therefore necessary to consider the position for old tenancies (those granted before 1 January 1996) and new tenancies (granted on or after that date).

In respect of old tenancies, the editors of Woodfall are of the view that an assignee (incoming tenant) is not liable for sums payable in respect of a period falling prior to the date of assignment. This is stated to be the case whether or not service charge is reserved as rent.

It is less clear whether the position is the same under a new tenancy. Section 23(1) of the 1995 Act provides that an assignee has no ‘liability’ under the service charge covenants ‘in relation to any time falling before the assignment’. Thus it could be argued that he cannot be required in any circumstances to pay arrears accruing before the assignment even as a condition of relief from forfeiture.

The counter-argument is that Section 23(1) did not change the law. The assignee’s ‘liability’ in the sense of personal liability is the same under an old tenancy as under a new tenancy. Nothing in Section 23 expressly seeks to change the law of forfeiture and one would expect express provision for such a radical change.

Surely the landlord would still be entitled to forfeit and would still therefore be able to obtain the service charge arrears as a condition of relief?

A further problem which arises is that forfeiture on the grounds of non-payment of service charge is governed by the Housing Act 1996.

Section 81(1) states that a landlord may not exercise a right of re-entry or forfeiture for failure by a tenant to pay a service charge or administration charge except in certain circumstances.

It seems the way forward is to seek a determination against the assignor. The assignee should be served with a copy of the proceedings together with a covering letter explaining that the landlord intends to forfeit if the arrears are not paid and should be invited to join the proceedings if he so wishes.

The threat of forfeiture means that purchasers of flats will in most cases check that service charges have been paid before purchasing. It is then for the purchaser either to ensure that those arrears are paid, or take the risk of purchasing a lease that is liable for forfeiture.

It is clear that an assignee is not liable as matter of debt for arrears accruing before the assignment. What is also clear is that the landlord may still use the threat of forfeiture as an effective tool to ensure that the assignee does pay the arrears.

If you are buying a flat make sure you seek confirmation from the landlord that the service charges have been paid.