26th April 2021

Forfeiture of Leases: Be wary of Waiver

By Kate Andrews

The Court of Appeal has recently provided confirmation to the property world as to what will amount to wavier on forfeiture in the case of Mohammed Majeed Faiz (1) Shakeela Faiz (2) and Sassf Ltd (3) v Burnley Borough Council [2021] EWCA Civ 55.

The facts

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. The sub-lease was not contracted out of the 1954 Act protection.

After the discovery of the sub-lease, the landlord served a Section 146 notice and a few days later, on 4 November 2019, issued 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 Decision

The Court of Appeal upheld the decision in the High Court, concluding that the landlord had not waived its right to forfeit the lease. It was accepted the Landlord had no prior knowledge of the breach when the initial demand was made, and so the act of demanding and accepting payment of the insurance rent after the section 146 notice was served could not be deemed as an intention to forfeit the lease.

The second question for the court to consider was whether the amended demand, which was adjusted once the landlord had knowledge of the tenants’ breach, amounted to a brand new invoice. The Court of Appeal held the amended 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 insurance rent than was demanded on 26 September 2019.

Despite the moratorium on forfeiture for rental arrears being extended until 30 June 2021, this case provides welcome clarification for landlords on the issue of forfeiture, but also serves as an important reminder to be alert to potential hazards of making lease demands without first checking whether a breach has occurred.

If you are a tenant or landlord with any questions about payments due under a lease, or on the moratorium and how you might proceed with collecting sums due after 30 June 2021, do not hesitate to contact a member of the Property Litigation team who would be happy to help.

Forfeiture of Leases: Be wary of Waiver

Have a question? Contact Kate

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Have a question? Contact Kate

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