Clare Cullen considers the case of Croydon London Borough Council v Kalonga  UKSC 7. The Supreme Court considered if, and how, a flexible tenancy can be ended during the fixed term.
How is the case significant for landlords and tenants?
The terms of a flexible tenancy should be considered carefully to see whether the tenancy can be ended during the fixed term. If a landlord seeks to end the tenancy early pursuant to a forfeiture clause, the landlord will have to serve a section 146 notice and seek a termination order before, or at the same time as, seeking possession.
Localism Act 2011: The Localism Act 2011 introduced flexible tenancies under sections 107A to 107E, Housing Act 1985. These are fixed term secure tenancies which can be ended on simpler grounds than under Schedule 2, Housing Act 1985 after the fixed term has ended.
Housing Act 1985, section 82: Section 82 Housing Act 1985 sets out how a fixed term secure tenancy “subject to termination by the landlord” can be brought to an end by the landlord. This includes subsection 82(3) which provides for an order terminating the tenancy in lieu of forfeiture (whereby a periodic secure tenancy would arise) and subsection 82(4) which provides that section 146, Law of Property Act 1925 applies to proceedings under subsection 82(3).
Law of Property Act 1925, section 146: Section 146, Law of Property Act 1925, provides that a right of re-entry or forfeiture for breach of a lease is not enforceable unless the landlord has served a notice complying with the section. Section 146, Law of Property Act 1925 does not apply to non-payment of rent. A lessee may apply for relief from forfeiture.
In May 2015, the local authority granted Ms K a flexible tenancy for five years. The tenancy agreement stated that the authority
“may also take eviction action at any time if one or more of the grounds of possession set out in Schedule 2 of these conditions apply.”
In August 2017, before the fixed term had ended, the authority served a notice seeking possession on grounds of anti-social behaviour and rent arrears. The authority did not serve a section 146 notice.
Possession proceedings were issued. The case was transferred to the High Court to consider how a flexible tenancy can be determined during the fixed term.
The High Court held that the authority’s tenancy agreement did not contain a provision for forfeiture. Had it contained such a provision, a possession claim would have been sufficient without the landlord having to seek a termination order under section 82(3), Housing Act 1985.
The Court of Appeal also held that the tenancy agreement did not contain a provision for forfeiture. However, the Court of Appeal considered that, even if there had been a forfeiture provision, the only way the fixed term tenancy could have been brought to an end early was to serve a section 146 notice and obtain a termination order under section 82(3), Housing Act 1985.
Outcome - the Supreme Court judgment
The Supreme Court allowed the appeal in part. A flexible tenancy can only be ended by the landlord during the fixed term if the tenancy agreement contains a break clause and/or a forfeiture clause.
A clause is a forfeiture clause if:
(a) when exercised, it operates to bring the lease to an end earlier than it would ‘naturally’ terminate, and
(b) it is exercisable in the event of a default by the tenant.
If the tenancy agreement contains a break clause, and the clause become exercisable, a landlord can take possession proceedings without serving a section 146 notice or seeking a termination order under section 82(3), Housing Act 1985.
If the tenancy agreement contains a forfeiture clause, the landlord must serve a s.146 notice (other than in rent arrears cases) and seek a termination order under section 82(3), Housing Act 1985 before, or at the same time as, seeking possession on statutory grounds.
If a tenancy agreement contains neither a break clause nor a forfeiture clause, the tenancy cannot be ended during the fixed term.
The reference in the authority’s tenancy agreement to “at any time” was sufficient to amount to both a break clause and a forfeiture clause. Where the authority was seeking to take possession on fault-based grounds under Schedule 2, Housing Act 1985, this operated as a forfeiture clause. Where the authority was seeking to take possession on non-fault based grounds this operated as a complicated break clause.
The authority had failed to serve a section 146 notice and seek a termination order under section 82(3), Housing Act 1985. Therefore, despite having a forfeiture clause, the claim for possession was bound to fail.