Lease Forfeiture Guide: Rights & Process Explained
A comprehensive guide to lease forfeiture, covering how and when a freeholder can forfeit a lease, the Section 146 notice requirements, common grounds including breach of lease covenant and unpaid forfeiture service charges, and how leaseholders can seek relief from forfeiture. Forfeiture is the most serious sanction in leasehold law and understanding the process is essential for protecting your home.
What Is Lease Forfeiture?
Lease forfeiture is the legal mechanism by which a freeholder brings a long lease to an end and reclaims possession of the property. It is the most drastic remedy available in leasehold law and can result in the leaseholder losing not only their home but also the entire financial value of the lease. In a block of flats, where individual leases may be worth hundreds of thousands of pounds, the consequences of forfeiture of lease are severe.
Forfeiture operates as a right of re-entry. When a leaseholder breaches a term of their lease, the freeholder may have the right, under a forfeiture clause contained in the lease, to re-enter the property and terminate the lease. This means the leaseholder loses their interest in the property entirely. The freeholder regains vacant possession and is free to grant a new lease or deal with the property as they see fit. The leaseholder receives no compensation for the remaining term of the lease.
Because the consequences are so severe, the law imposes strict procedural requirements on the forfeiture process, and leaseholders have important rights to seek relief from forfeiture through the courts. Understanding these requirements and protections is essential for any leaseholder who has received a Section 146 notice or who is concerned about the risk of forfeiture. For related guidance on disputes between freeholders and leaseholders, see our leasehold disputes guide.
Grounds for Forfeiture
A freeholder can only pursue lease forfeiture where there has been a breach of lease covenant by the leaseholder. The lease will contain a forfeiture clause setting out the circumstances in which the freeholder may re-enter the property. The most common grounds for forfeiture in residential leasehold are as follows.
Service Charge Arrears
Non-payment of service charges is one of the most common grounds for forfeiture of lease. Forfeiture service charges cases are subject to additional statutory protections under Section 81 of the Housing Act 1996, which requires the amount to be determined before proceedings can begin. Persistent non-payment disrupts the building's finances and can ultimately lead to forfeiture where all other recovery methods have failed.
Breach of Lease Covenant
Leases contain a range of covenants that leaseholders must observe. A breach of lease covenant can include failure to maintain the interior of the property, keeping pets where the lease prohibits them, using the property for business purposes where only residential use is permitted, or failing to comply with regulations set by the managing agent. Any breach of a covenant in the lease can potentially give rise to forfeiture if the lease contains an appropriate forfeiture clause.
Unauthorised Subletting
Many leases restrict or prohibit subletting without the prior consent of the freeholder. Subletting in breach of the lease covenant is a common ground for forfeiture. This is particularly relevant in blocks of flats where unauthorised short-term lettings can cause nuisance to other residents, create security concerns, and breach the terms of the building's insurance policy. The freeholder must still follow the correct forfeiture procedure, including serving a Section 146 notice, before pursuing forfeiture on this ground.
Unauthorised Alterations
Carrying out structural or significant alterations to the property without the freeholder's consent is a breach of lease covenant in most leases. This can include removing internal walls, altering the layout of the flat, installing new plumbing or wiring that affects the building structure, or making changes to the exterior of the property. Such breaches can affect the structural integrity of the building and the interests of other leaseholders.
Nuisance and Anti-Social Behaviour
Leases typically contain covenants requiring leaseholders not to cause nuisance or annoyance to other occupiers in the building. Persistent noise, anti-social behaviour, harassment of neighbours, or use of the property in a way that causes disturbance can constitute a breach of lease covenant and give rise to forfeiture proceedings. These cases can be complex because the freeholder must demonstrate that the behaviour amounts to a breach of a specific covenant in the lease.
The Forfeiture Process
The process for lease forfeiture is governed by Section 146 of the Law of Property Act 1925. This statute imposes strict requirements that the freeholder must follow before forfeiture can take effect. Failure to comply with these requirements can render the forfeiture invalid.
The Section 146 Notice
Before a freeholder can forfeit a lease for any breach of lease covenant (other than non-payment of rent, which follows a separate procedure), they must serve a Section 146 notice on the leaseholder. The notice must specify the particular breach complained of, require the leaseholder to remedy the breach if it is capable of being remedied, and require the leaseholder to pay compensation in money for the breach if the freeholder requires such compensation. The notice must be served in writing and comply with the requirements of the Law of Property Act 1925.
Reasonable Time to Remedy
After serving the Section 146 notice, the freeholder must allow the leaseholder a reasonable period of time in which to remedy the breach. What constitutes a reasonable period depends on the nature of the breach. For financial breaches such as forfeiture service charges, a reasonable period to arrange payment might be 14 to 28 days. For breaches requiring physical works, such as removing unauthorised alterations, a longer period may be necessary. The freeholder cannot proceed with forfeiture until this reasonable period has expired.
Re-Entry and Court Proceedings
If the leaseholder fails to remedy the breach within the time allowed, the freeholder may proceed with forfeiture of lease either by peaceable re-entry or by issuing court proceedings seeking possession. For residential property, the freeholder cannot exercise a right of re-entry other than through court proceedings while any person is lawfully residing in the property (Protection from Eviction Act 1977). In practice, this means that forfeiture of a residential lease almost always requires a court order. The court proceedings give the leaseholder a further opportunity to apply for relief from forfeiture.
Waiver of Forfeiture
A freeholder can lose the right to forfeit a lease if they waive the breach. Waiver occurs when the freeholder, with knowledge of the breach, does an unequivocal act recognising the continued existence of the lease. The most common example is accepting rent or service charge payments after becoming aware of the breach. Once waiver occurs, the right to forfeit for that particular breach is lost, although a new right to forfeit may arise if the breach continues or is repeated. This is an important consideration for freeholders and managing agents who must be careful not to inadvertently waive the right to forfeit by accepting payments.
Forfeiture for Service Charge Arrears
Forfeiture service charges cases are treated differently from other types of forfeiture because of the additional protections introduced by the Housing Act 1996. Parliament recognised that lease forfeiture for unpaid service charges is a disproportionately harsh remedy and introduced safeguards to protect leaseholders.
Section 81 of the Housing Act 1996
Section 81 of the Housing Act 1996 provides that a freeholder may not exercise a right of re-entry or forfeiture for failure to pay a service charge unless the amount of the service charge has been agreed or admitted by the leaseholder, or a court or the First-tier Tribunal has determined that the amount is due. This means the freeholder cannot simply allege that service charges are unpaid and proceed to forfeit; there must be a formal determination of the debt. This is a crucial protection for leaseholders who dispute the charges.
County Court Determination
In practice, the requirement for a determination means that the freeholder must first obtain a county court judgment or a Tribunal decision confirming the amount owed before commencing forfeiture proceedings. This additional step gives the leaseholder the opportunity to challenge the charges and to pay the arrears before forfeiture becomes a risk. For more detail on how service charge arrears are recovered, see our dedicated guide.
Ground Rent Arrears
It is important to distinguish between service charge arrears and ground rent arrears. Non-payment of ground rent is treated as non-payment of rent rather than a breach of lease covenant, and the forfeiture procedure for non-payment of rent is different. For ground rent, the freeholder may be able to forfeit by making a formal demand and then proceeding to court without first serving a Section 146 notice. However, reforms under the Leasehold Reform (Ground Rent) Act 2022 and related legislation have restricted the circumstances in which ground rent forfeiture can be pursued.
Relief from Forfeiture
Relief from forfeiture is one of the most important protections available to leaseholders facing the loss of their home. The law recognises that forfeiture is an extreme remedy and gives leaseholders the right to apply to the court for relief, effectively asking the court to restore the lease and prevent forfeiture from taking effect.
Right to Apply to Court
Under Section 146(2) of the Law of Property Act 1925, a leaseholder may apply to the court for relief from forfeiture at any time after the Section 146 notice has been served and before the freeholder has re-entered the property. Even after the freeholder has obtained a possession order, the leaseholder may still be able to apply for relief in certain circumstances. The court has broad discretion to grant or refuse relief on such terms as it thinks fit. Subtenant and mortgage lenders also have the right to apply for relief, as their interests are also affected by forfeiture.
Conditions for Granting Relief
The court will consider all the circumstances of the case when deciding whether to grant relief from forfeiture. Key factors include the nature and gravity of the breach, whether the breach has been remedied, the leaseholder's conduct and willingness to comply with the lease terms going forward, the value of the lease compared to the seriousness of the breach, and the impact on other parties including the freeholder, other leaseholders, and any mortgage lender. Where the breach is a failure to pay forfeiture service charges or other financial obligations, the court will typically grant relief on condition that the leaseholder pays all outstanding sums together with the freeholder's costs.
Equitable Principles
Relief from forfeiture is an equitable remedy, which means the court applies principles of fairness and justice rather than rigid rules. The court will consider whether it would be unconscionable for the freeholder to take advantage of the breach and whether the leaseholder deserves a second chance. The courts have recognised that the loss of a long lease, which may represent the leaseholder's most valuable asset and their home, is a disproportionate consequence for many types of breach. As a result, relief is granted in the majority of cases, particularly where the breach is financial and the leaseholder is able to pay the arrears. However, relief is not automatic, and leaseholders who have persistently breached their lease or acted in bad faith may find the court less sympathetic.
If you have received a Section 146 notice or are facing forfeiture proceedings, it is essential to seek legal advice immediately. For disputes that may arise during this process, our leasehold disputes guide provides further context on the options available to leaseholders.
How Managing Agents Handle Forfeiture
A responsible managing agent treats lease forfeiture as an absolute last resort. At Block, we believe that forfeiture should only be considered after all other avenues for resolving the breach have been exhausted. Our approach is always proportionate, transparent, and focused on achieving the best outcome for the building as a whole.
- Early communication with leaseholders when a breach of lease covenant is identified, giving them the opportunity to remedy the breach voluntarily
- Offering payment plans for leaseholders in service charge arrears before escalating to formal recovery action
- Working with the freeholder and their solicitors to ensure that any Section 146 notice is properly drafted and served in accordance with the Law of Property Act 1925
- Advising freeholders on the additional requirements under Section 81 of the Housing Act 1996 for forfeiture service charges cases
- Ensuring all statutory procedures are followed to minimise the risk of the forfeiture being challenged or invalidated
- Advising leaseholders of their right to seek relief from forfeiture and encouraging them to engage with the process
- Maintaining detailed records of all correspondence and actions taken, which may be required as evidence if the matter proceeds to court
- Recommending mediation or alternative dispute resolution where appropriate, in line with our leasehold disputes approach
For more information on how we manage service charges and handle service charge arrears, see our dedicated guides.
Frequently Asked Questions About Lease Forfeiture
What is lease forfeiture and when can it happen?
Lease forfeiture is the legal process by which a freeholder terminates a long lease and takes back possession of the property due to a breach of covenant by the leaseholder. It is the most serious sanction available in leasehold law and can result in the leaseholder losing their home and the entire value of their lease. Forfeiture can happen when a leaseholder breaches a term of their lease, such as failing to pay service charges or ground rent, carrying out unauthorised alterations, subletting without permission, or causing a nuisance. Before forfeiture can proceed, the freeholder must serve a Section 146 notice under the Law of Property Act 1925, giving the leaseholder an opportunity to remedy the breach. Forfeiture for service charge arrears is subject to additional protections under Section 81 of the Housing Act 1996, which requires the debt to be determined by a court or tribunal before proceedings can begin.
Can I lose my flat for not paying service charges?
In theory, yes, a freeholder can seek to forfeit your lease for unpaid service charges, but in practice there are significant legal protections that make this outcome rare. Under Section 81 of the Housing Act 1996, a freeholder cannot forfeit a lease for service charge arrears unless the amount owed has been agreed by the leaseholder, admitted by the leaseholder, or determined by a county court or the First-tier Tribunal. Even once this threshold is met, the freeholder must serve a Section 146 notice and give you a reasonable period to remedy the breach by paying the outstanding amount. If the matter goes to court, you have the right to apply for relief from forfeiture, and courts are generally reluctant to allow forfeiture where the leaseholder is willing and able to pay the arrears. The key is to engage early, seek advice, and not ignore correspondence from your freeholder or managing agent.
What is a Section 146 notice?
A Section 146 notice is a formal notice served by the freeholder on the leaseholder under Section 146 of the Law of Property Act 1925. It is a mandatory prerequisite before a freeholder can forfeit a lease for any breach of covenant other than non-payment of rent. The notice must specify the breach complained of, require the leaseholder to remedy the breach if it is capable of remedy, and require the leaseholder to pay compensation in money if the freeholder requires it. The notice must give the leaseholder a reasonable time to remedy the breach before the freeholder can proceed with re-entry or court proceedings. If the Section 146 notice does not comply with these requirements, any subsequent forfeiture action may be invalid. Leaseholders who receive a Section 146 notice should take immediate legal advice, as the notice is a serious step that can lead to the loss of their home if not addressed promptly.
How can I get relief from forfeiture?
If your freeholder has commenced forfeiture proceedings, you have the right to apply to the court for relief from forfeiture. Relief is an equitable remedy, which means the court has discretion to grant it based on all the circumstances of the case. In most cases involving service charge arrears or other financial breaches, the court will grant relief if the leaseholder pays all outstanding arrears, costs, and any compensation due. The court considers factors such as the nature and gravity of the breach, the conduct of the parties, the value of the property, and whether the breach has been remedied. For non-financial breaches, such as unauthorised alterations or subletting, the court will consider whether the breach has been remedied and whether it is just and equitable to allow the lease to continue. You should apply for relief as early as possible, as delay can count against you. Legal representation is strongly recommended when applying for relief from forfeiture.
How much do I need to owe before forfeiture can begin?
There is no single fixed amount that triggers forfeiture for service charge arrears. The right to forfeit depends on the terms of the lease, which typically include a forfeiture clause that allows the freeholder to re-enter the property if the leaseholder breaches any covenant, including the covenant to pay service charges. However, for service charge arrears specifically, Section 81 of the Housing Act 1996 requires that the amount must first be determined by a court or the First-tier Tribunal, or admitted or agreed by the leaseholder, before forfeiture proceedings can commence. Some leases may specify a minimum arrears threshold or a period of non-payment before the forfeiture clause is engaged. In practice, freeholders and managing agents view forfeiture as a last resort and will exhaust other recovery options, including payment plans and county court claims, before considering forfeiture. Courts are also reluctant to allow forfeiture for relatively small sums given the disproportionate consequence of the leaseholder losing their home.
Can a managing agent initiate forfeiture proceedings?
A managing agent cannot initiate forfeiture proceedings in their own name. The right to forfeit a lease belongs to the freeholder, as it is the freeholder who holds the reversionary interest in the property. However, a managing agent plays an important role in the process by managing the arrears recovery procedure, instructing solicitors on behalf of the freeholder, and ensuring that all statutory requirements are met before forfeiture proceedings are commenced. The managing agent will typically escalate the matter through a series of steps, including reminder letters, formal demands, letters before action, and county court claims, before recommending forfeiture to the freeholder as a last resort. A responsible managing agent will always ensure that forfeiture is pursued proportionately and only where all other avenues have been exhausted. At Block, we work closely with freeholders and their solicitors to ensure that any forfeiture action is lawful, procedurally correct, and justified by the circumstances.
Need Help With Lease Forfeiture?
Whether you are a leaseholder who has received a Section 146 notice and needs to understand your options for relief from forfeiture, a freeholder considering forfeiture for a persistent breach of lease covenant, or a director seeking guidance on how forfeiture service charges cases should be handled, Block Management Company is here to help. Our experienced team manages leasehold disputes and service charge arrears recovery across hundreds of buildings nationwide.