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Landlords and waiver of the right to forfeiture

Lina Mattsson examines a Court of Appeal case involving a council that concerned the waiver rules and the right to forfeiture.

In Faiz v Burnley BC [2021] EWCA Civ 55 (22 January 2021) the respondent landlord (L) had let a café to commercial tenants (T), the first and second appellants. The lease provided for the payment of insurance rent within 7 days of demand. The lease contained an absolute prohibition on sub-letting and a forfeiture clause in the event of breach of covenant. 

On 26 September 2019, L demanded insurance rent for the period between 1 April 2019 and 25 March 2020, when the lease was due to expire. The invoiced sum became due on 2 October; it was not paid by T. In early October 2019 T sublet the premises in breach of covenant to S, the third appellant. L became aware of the sub-letting on 18 October 2019. On 30 October 2019, L served a s 146 notice. On 4 November 2019 L sent another demand for immediate payment of the insurance rent, but the figure demanded had been recalculated for 1 April - 18 October 2019. The insurance rent was paid on 11 November 2019. On was not returned. On 22 November 2019 L peacefully re-entered the premises.  

The issue was whether the re-entry had been unlawful because L’s demand and subsequent acceptance of the insurance rent had waived the right to forfeit. 

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Decision  

The Court of Appeal dismissed T’s appeal. In short, the Court held that where the breach consisted of an unlawful sub-letting, the landlord had to know not only that the sub-letting had taken place, but also that the rent demanded or accepted had accrued due after the date of the breach. The burden of proof to establish these facts rested on T, and that burden had not been discharged.  

The Court’s reasoning is a helpful expose of the difficult principles underpinning waiver. The Court explained that waiver took place where the landlord demanded or accepted rent which accrued due after the date of a breach known to the landlord. Where a tenant committed a breach of covenant which gave rise to the right to forfeit the lease, the landlord could either forfeit the lease or waive forfeiture. To be put in that position, the landlord had to have knowledge of the basic facts constituting the breach. The acceptance of rent which accrued due after the landlord knew of the breach amounted to waiver.  

It was however less clear whether the demand and acceptance of rent with knowledge of the breach amounted to waiver when the rent accrued due after the breach, but before the landlord had knowledge of the breach. There was no binding authority on that point. However, forfeiture was dependant on the breach of covenant, not the date the landlord became aware of the breach. It mattered not whether the rent accrued due before or after the date of the landlord’s knowledge, but whether it accrued due before or after the date of the breach of which the landlord subsequently had knowledge. This was because waiver took place where the landlord demanded or accepted rent which accrued due after the date of a breach known to the landlord. It followed that in the case of an unlawful sub-letting, the landlord had to know (1) that the sub-letting had taken place and (2) that the rent demanded or accepted had accrued due after the date of the breach. 

On the facts of this case, this meant that to establish the waiver T would have had to show that the insurance rent demanded had fallen due before the breach giving raise to the right to forfeit. This had not been established. “In early October” was the only evidence before the court as to the date of the subletting, this encompassed a date after 2 October 2019, when the insurance rent fell due. Thus there was therefore no evidence that the insurance rent could have become due before the date of breach. Further, at the date the insurance rent accrued was due 2 October 2019, L could not have known of the breach as it was not revealed until 18 October 2019. The 26 September 2019 demand for the insurance rent could therefore not have amounted to a waiver. Nor did the revised 4 November 2019 demand amount to a waiver. It was not a fresh demand, but a revised demand of the sum already due on 2 October 2019. Finally, the payment accepted on 11 November 2019 did also not amount to waiver as L did not know that is accepted rent for a period that accrued due before the date of breach. The acceptance of the payment did not, therefore, amount to a waiver of forfeiture. 

Lesson learnt  

This case highlights the complex rules governing waiver and how the slightest misstep by a landlord can waive the right to forfeit. It is therefore a lesson in how risky it is to demand or accept any payments without full knowledge of the facts when there has been a potential breach by the tenant and the landlord may wish to forfeit.

Lina Mattsson is a barrister at Hardwicke.

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