Note: This article continues our series offering practical guidance for landlords on the theme of forfeiture, more specifically on the issue of landlords waiving their right to forfeit.
Do I Have a Right to Forfeit the Lease?
The right to forfeit must be expressly reserved in the lease. If the lease does not expressly reserve this right, the landlord only has an implied right to forfeit if the tenant denies the landlord’s title or breaches a condition (as opposed to a simple covenant) of the lease.
A landlord should be able to forfeit a lease for non-payment of rent even when the right is not expressly reserved, provided the reservation of rent is a proper condition.
Do I Need to Serve a Section 146 Notice Before Forfeiting the Lease?
A landlord cannot enforce a right of forfeiture for a breach of covenant—other than in certain cases such as non-payment of rent—unless and until it has served a Section 146 notice. The notice must give the tenant a reasonable time to remedy the breach, if it is capable of being remedied.
Additionally:
- A landlord cannot enforce a right of re-entry or forfeiture of premises “let as a dwelling” without a court order if any person is lawfully residing in the premises (Section 2, Protection from Eviction Act 1977 (PEA 1977)).
- For mixed-use premises, a court order under Section 2 of the PEA 1977 must be obtained (Pirabakaran v Patel and another [2006] EWCA Civ 685).
- If the tenant becomes insolvent, the landlord may need consent or court permission to forfeit the lease.
For more guidance on forfeiture limitations and the requirements of Section 146 of the Law of Property Act 1925, please refer to our previous articles:
How Does Waiver of the Right to Forfeit a Lease Occur?
Once the right to forfeit has arisen and the landlord is considering re-entry, the landlord must be careful to ensure that it does not do anything to waive the right to forfeit the lease.
Where the right to forfeit has arisen, waiver will occur where the landlord:
- The landlord is aware of the tenant’s breach;
- The landlord performs an unequivocal act recognising the lease as continuing to exist; and
- This act is communicated to the tenant.
The basic principle is that once a forfeiture situation arises, the landlord must elect either to forfeit the lease or to treat the lease as continuing by waiving the right to forfeit. A landlord cannot assert that the lease has ended while simultaneously affirming its continuation.
Once a landlord has chosen not to forfeit, the right to do so for that breach is permanently lost (although a new right may arise in the case of continuing breaches).
Continuing Breaches vs. Once-and-for-All Breaches
- Continuing Breaches: A fresh right of forfeiture arises daily as long as the breach continues. Waiver applies only to breaches that occurred prior to the landlord’s act of waiver. It will not prevent the landlord from forfeiting for the continuing breach, after the act of waiver, when the right to forfeit will arise again.
- Once-and-for-All Breaches: These are one-time breaches, such as failing to meet a deadline, and the right to forfeit is permanently lost upon waiver.
Waiver is therefore more crucial in relation to once-and-for-all breaches than continuing breaches. As a general principle, if there is an obligation to perform an act by a given date or within a reasonable period of time, it will be a once-and-for-all breach if that act is not performed by that date.
This could have serious commercial consequences and result in the landlord incurring significant losses.
What Actions May Constitute a Waiver of the Right to Forfeit?
If a tenant breaches the lease, giving rise to the landlord’s right to forfeit, the following actions by the landlord may waive this right:
- Accepting or demanding rent which accrued due after the date of the breach of covenant of which the landlord subsequently has knowledge.
- Accepting or demanding service charge sums accrued due after the date of the breach of covenant of which the landlord subsequently has knowledge.
- Exercising Commercial Rent Arrears Recovery (CRAR)
- Service of a notice to quit or section 25 notice under the Landlord and Tenant Act 1954
- Entering into correspondence with the tenant about consent to assign / underlet, consent to alter the premises, or corresponding on the potential surrender of a lease.
Case Study: Faiz v Burnley Borough Council [2021]
With respect to the issue of accepting and demanding rent, the Court of Appeal decision in Mohammed Majeed Faiz (1) Shakeela Faiz (2) and Sassf Ltd (3) v Burnley Borough Council [2021] EWCA Civ 55 provided clarity as to what the courts approach to landlord’s waiving the right to forfeit.
In this case, the Landlord, Burnley Borough Council (“the Council”), granted an excluded 10 year lease of a café at Towneley Hall, Lancashire. The lease included a clause that said insurance rent was payable within 7 days of demand.
On 26 September 2019, the Council issued a demand for insurance rent to the tenant for the period from 1 April 2019 to the date of the end of the lease. The insurance rent, in accordance with the lease, was due and payable on or before 2 October 2019.
It was disclosed by the tenants’ solicitors after the landlord had demanded payment of the insurance rent that a sublease had been granted which was prohibited by the lease.
After the discovery of the sub-lease, the landlord served a Section 146 notice and a few days later, on 4 November 2019, served a revised invoice for insurance rents calculated up to the date upon which the landlord became aware of the breach. Payment of the invoice was made by the tenants on 11 November 2019.
On 22 November 2019, the landlord purported to forfeit the lease by way of peaceable re-entry.
The Claimant tenant argued in the High Court that the landlord’s acceptance of the insurance rent on 11 November 2019 waived the landlord’s right to forfeit the lease, because the landlord had demanded and accepted payment after they had become aware of the tenants’ breach.
The Court of Appeal upheld the decision in the High Court, determining that the landlord had not waived its right to forfeit the lease.
The Court of Appeal considered two key issues which were key to its determination:
The first question was whether the landlord’s acceptance of rent after the breach had occurred, with knowledge of that breach, could waive the right to forfeit, in circumstances where (i) the rent in question had been demanded before the landlord had knowledge of the breach; but (ii) the rent was demanded after the breach itself; and (iii) the landlord accepted the rent after becoming aware of the breach.
In this regard, the Lord Justice Lewison considered that:
“[…] the principle is that waiver takes place where the landlord demands or accepts rent which accrued due after the date of a breach known to the landlord. Where the breach consists of an unlawful sub-letting (as in this case), I consider that the landlord must know not only that the sub-letting has taken place, but also that the rent demanded or accepted accrued due after the date of the breach”.
Accordingly, it was accepted the Landlord did not have prior knowledge of the breach when the first rent demand was made as the burden of proof in establishing the waiver lies with the tenants and in this instance, it was held the tenants had not discharged this burden.
The second question was whether the revised demand for rent made on 4 November 2019 was a new demand for rent due after the landlord had acquired knowledge of the breach. The Court of Appeal held the revised invoice did not constitute a new invoice but was merely an acknowledgment from the landlord it was prepared to accept a lower amount for the rent than was previously demanded on 26 September 2019.
The decision in Faiz v Burnley provides helpful clarification for landlords on the issue of forfeiture, but also serves as an important reminder to be alert to the potential consequences of making lease demands without first checking whether a breach has occurred.
TLDR: Faiz v Burnley Borough Council [2021] (Summary)
The Court of Appeal clarified key principles regarding waiver in this case:
- Knowledge of Breach: Waiver occurs when the landlord demands or accepts rent that accrued after the breach and after the landlord becomes aware of the breach. In this case, the landlord’s demand for insurance rent was made before it had knowledge of the tenant’s breach.
- Revised Demand: A revised invoice issued after the landlord became aware of the breach was deemed an adjustment, not a new demand.
This case underscores the importance of checking for breaches before issuing demands to avoid unintentional waiver of the right to forfeit.
What Actions Do Not Constitute a Waiver of The Landlord’s Right to Forfeit?
Certain actions are not considered an affirmation of the lease’s continuation and therefore do not waive the right to forfeit:
- Demanding or accepting rent due before the breach occurred.
- Serving a Section 146 notice (as it is a preliminary step to forfeiture).
- Without-prejudice negotiations with the tenant. However, landlords should exercise caution to avoid inadvertently affirming the lease through communication.
Can I Waive the Right to Forfeit and Still Pursue a Claim Against the Tenant?
It is important to distinguish between:
- Waiver of the Right to Forfeit: Prevents the landlord from forfeiting for the specific breach but does not bar claims for damages or other remedies.
- Waiver of a Breach of Covenant: Implies consent and prevents the landlord from pursuing any remedies for that breach.
How Can I Reduce the Risk of Waiving the Right to Forfeit?
To avoid waiving the right to forfeit, landlords should:
- Cease all communication with the tenant upon becoming aware of a breach.
- Implement a rent stop and halt rent demands.
- Refrain from routine correspondence that could imply the lease’s continuation.
Contact Us
David Burns, Senior Litigation Partner at Ronald Fletcher Baker LLP, has extensive experience handling cases involving commercial tenants who breach their lease terms. For advice, contact David at D.Burns@rfblegal.co.uk or 07762318409.
David Burns
Senior Litigation Partner
