Arrears after a Lease is Sold

Hopefully when a lease changes hands on your development the issue of service charge liability will be dealt with long before. In the majority of cases service charge arrears will be paid off in full by the departing lessee. Or in some cases the buying party is made aware of the arrears and agree to pay them. However you may find that a lease will change hands and the new lessee has no idea that a debt exists. Unfortunately in this circumstance the law is not 100% clear and also depending on the lease different rules could apply. I therefore suggest that if you encounter this problem legal advice is sought immediately. However I can offer some general guidance on ways in which the matter can be dealt with.

When a lease changes hands the solicitor acting on behalf of the buying party should carry out due diligence and find out if any arrears are owed on the property. The reason they should do this is because service charge arrears remain with the lease, not the departing lessee. Therefore if any arrears stay with the property and the new lessee is not aware, I would advise them to contact their solicitor. I have known cases where the solicitor will admit fault and cover the cost of the service charge arrears.

If the solicitor doesn’t play ball with the above then (depending on the legal advice you receive) there is a couple of options available.

1. The new lessee may be liable to pay the service charge. In this instance I suggest you explain this too them and hopefully they will pay. If not then follow our process, or  something similar, in our service charge recovery article.



2. You may be left in the position where neither the new lessee nor the old lessee is liable for the arrears, but you still have a debt on the property. In this case the only way to proceed is to apply for forfeiture of the lease. This means that although technically the new lessee doesn’t owe any money, action can still be taken to end their lease early to recover the arrears owed to the landlord or the management company. In most cases I believe that the lessee will be offered the chance to pay the arrears as relief from forfeiture. It makes sense they would rather pay the arrears than loose their home.

Unfortunately I can not give guidance on this matter that will relate to all circumstances, and therefore this article is purely a generalisation. I suggest that in any instance where arrears are left with a property after a lease has changed hands, you contact a solicitor to understand your legal position.