Forfeiture Explained: How Arrears Can Put Your Flat at Risk

Being in arrears simply means you’ve fallen behind on payments owed under your lease.

This typically includes service charges, which cover the maintenance and running of the building, and ground rent, which is paid to the freeholder. These charges aren’t optional. They’re legal obligations set out in your lease agreement.

Why arrears matter

At first, arrears might seem like an administrative issue. You miss a payment, receive a reminder, and intend to catch up when you can. But from a legal perspective, those missed payments are a breach of your lease.

And once a breach exists, the freeholder has the right to take action.

Not every missed payment leads straight to legal action.

In most cases, managing agents or freeholders will attempt to recover the debt through reminders, statements, and ongoing communication. There’s usually an opportunity to resolve the issue before it escalates. Problems arise, however, when arrears are left unresolved.

If the amount owed increases, or communication breaks down, the situation can shift from routine debt recovery to formal legal proceedings. At that point, the tone changes. What was once a manageable issue becomes a structured process with clear legal consequences.

This is where many leaseholders get caught off guard. The escalation can feel sudden, even though it’s been building over time.

Before a freeholder can take action, they must follow a legal process.

This usually involves:

1. Formally establishing that the debt is valid and payable. In many cases, this means obtaining a determination through a tribunal or court, confirming that the charges are owed.
2. Once that’s in place, the freeholder can serve a formal notice under Section 146 of the Law of Property Act 1925. This notice outlines the breach and gives the leaseholder an opportunity to remedy it, typically by paying the outstanding amount. At this stage, there is still a chance to resolve the situation.

But if the arrears remain unpaid, the process can move forward.

Forfeiture is the legal right of a freeholder to terminate a lease due to a breach, such as non-payment of service charges or ground rent. If successful, the lease ends. The flat effectively reverts back to the freeholder. The leaseholder loses their legal interest in the property.

It’s an extreme outcome, and understandably one that many people assume wouldn’t realistically happen. But it can. While courts don’t grant forfeiture lightly, the risk becomes real when arrears are substantial, long-standing, and unresolved. At that point, the freeholder may argue that they’ve exhausted all reasonable options.

The most concerning part of forfeiture isn’t just losing your home. It’s the financial impact that comes with it. Unlike a standard sale, forfeiture doesn’t involve you recovering the value of your flat. The asset itself can effectively be lost, even if it’s worth significantly more than the debt owed.

That imbalance is what makes the situation so consequential. A relatively modest level of arrears, if left unaddressed, can escalate into a scenario where the consequences are far greater than the original issue.

The challenge for many leaseholders is recognising when a situation is becoming more serious. At the beginning, reminders and statements can feel routine. But certain signs indicate that the issue is progressing.

Clear signals:

• Formal letters
• Increased frequency of communication
• Or references to legal action should never be ignored

These are clear signs that the matter is moving beyond standard administration.

Equally, a lack of engagement can make things worse. If communication stops altogether, the freeholder or managing agent may have little choice but to proceed formally.

The earlier the issue is addressed, the more options remain available.

The key to avoiding forfeiture is addressing arrears early and proactively. If you’re struggling to keep up with payments, it’s important to communicate with your managing agent or freeholder as soon as possible. In many cases, payment plans or temporary arrangements can be agreed before the situation escalates.

Clarity is also important. Make sure you understand what you owe, when it’s due, and how charges are calculated. If something doesn’t seem right, raising it early can prevent misunderstandings later.

Ignoring the issue rarely makes it go away. In fact, it often limits your ability to resolve it on reasonable terms.