8 July 2020
RED Alert - Summer 2020 – 2 of 4 Insights
The High Court has held that a landlord did not waive its right to forfeit a lease by issuing a revised invoice for insurance rent after it became aware of the breach giving rise to its right to forfeit. The insurance rent had originally been demanded before the breach was known of and the landlord had issued a revised demand, apportioning the sums payable up to the date when the breach was discovered. Such action did not acknowledge a continuation of the lease and as such, there was no waiver.
This case concerned a café forming part of the Old Stables building at Towneley Hall in Lancashire. The Old Stables were let to the first and second claimants by the defendant under a 10 year lease contracted out of the security of tenure provisions at Part II of the Landlord and Tenant Act 1954 (the Act). In the usual way, the lease contained various restrictions prohibiting subletting.
By a lease dated 1 April 2017, the tenants sublet part of the premises to the third defendant. This lease was not contracted out of the Act and the landlord was not informed about its existence until 18 October 2019.
Upon discovering the existence of the sublease, the landlord served section 146 notices on its tenants to threaten forfeiture of the lease. Although the original lease was due to expire in 2020, the point was significant, as the subtenant would have a statutory right to take a new lease directly from the landlord.
The following sequence of events then occurred:
The claimants argued that, by accepting a payment of insurance rent on 11 November 2019, after the breach was known about, the landlord had waived its right to forfeit. In the circumstances, they asserted that the purported forfeiture was unlawful.
When a landlord's right to forfeit a lease arises, a landlord must elect whether to act on that right to terminate the lease, or to affirm the contract and allow it continue. For this reason, any act that acknowledges the continuation of the lease will be seen as an election by the landlord not to rely on its right to forfeit and any right to forfeit will be waived.
A common way that a landlord can acknowledge the continuation of the lease is to demand or accept monies due under the lease. Waiver will even occur if the monies are demanded on a "without prejudice basis". In short, it is very easy for a right to forfeit to be waived, as waiver can be entirely inadvertent.
The Court held that no waiver of the right to forfeit could occur by demanding monies that fell due prior to the date that the landlord became aware of the relevant breach. The demand of 4 November 2019 was not a fresh demand; it was merely a revision of a previous demand. If these monies had remained unpaid, they would still have been recoverable by the landlord after the termination of the lease on 22 November 2019.
The doctrine of waiver provides an easy trap for landlords to fall into, so strict controls should be put in place when landlords are considering this remedy and early advice should be taken. Although the landlord was successful in this case, the best advice for landlords is often to cease communication with a tenant when a right to forfeit arises, at least until the landlord has taken action. On the other hand, tenants should try to continue dialogue for as long as possible, both to settle any allegations of an alleged breach and to persuade the landlord to elect for the lease to continue.
This case concerned forfeiture for breach of an alienation provision. However, it should also be noted that the law concerning waiver of a right to forfeit for non-payment of rent has recently been changed in response to the coronavirus pandemic. It is not currently possible to forfeit a commercial lease for non-payment of rent and this moratorium is due to last until 30 September 2020 at the earliest. During this moratorium period, it is not possible to waive the right to forfeit for non-payment of rent, unless the right is expressly waived in writing. This means that landlords can currently continue to negotiate with their tenants without fear of jeopardising their future rights.
by Saleem Fazal
by Emma Dooley
by multiple authors