Although the case of Faiz & others v Burnley Borough Council [2021] EWCA Civ 55, concerned a commercial lease, its important findings apply equally to all Leases, both private and commercial. For those who wish to read it the full judgment can be seen here.

It relates to when waiver of the landlord’s right of forfeiture occurs and is an investigation into the knowledge of the parties at specific dates and their conduct. It confirms usefully what the court will consider amounts to an act of waiver. The information in this Legal Update is important for all Landlords, RMC’s, RTM Companies and those managing residential (or commercial) property when faced with a leaseholder who is in breach of the terms of their lease.

Waiver of the right to forfeit

The right of forfeiture arises when a term of the lease is breached by the tenant. Upon notice of the breach the landlord is put to an election. He must either:-

• elect to treat the lease as at an end because of the breach and therefore forfeit and take possession (or, in residential leases, take the steps toward the taking of possession); or

• elect to treat the lease as continuing despite the breach. The right to forfeit later for the same breach is likely to be waived, however, where the landlord acts in such a way.

Waiver occurs where the landlord acts in such a way as to treat the lease as continuing despite the breach, for example, the demanding or acceptance of rent.

In this case the tenant sought to claim that the landlord had waived the right of forfeiture by treating the lease as continuing following notice of the breach.

Background

The Council let premises as a café to father and daughter, Mr and Ms Faiz. The Lease contained an absolute prohibition on subletting, and a forfeiture clause effective on breach of covenant. The Lease provided for payment of rent and insurance rent.

Without the Council’s knowledge, and in clear breach of the total prohibition in the lease, Mr and Ms Faiz sublet the café at some point prior to 18 October 2019.

Prior to that on 26 September 2019, the Council had demanded insurance rent for the period 01 April 2019 to (the expiry of the Lease on) 25 February 2020. The insurance rent became due within 7 days following its demand, and therefore it was payable on 02 October 2019. It was not paid.

On 18 October 2019, the Faizs’ solicitors wrote to the Council, enclosing a copy of the Sub-Lease. This was the first date upon which the Council became aware of the unlawful sub-letting, and thus the breach of covenant.

On 30 October 2019, the Council served a S146 Notice on Mr and Ms Faiz (note that, unlike in the case of a residential lease, there is no requirement to obtain a determination of the breach of a commercial property lease prior to commencing steps for forfeiture).

On 04 November 2019, the Council revised the insurance rent figure, calculated now up to 18 October 2019 (the date of notice of the sub-letting breach and thus the date on which the Council considered the lease to have been at an end). Note here that the insurance now demanded was that previously demanded in September 2019 and thus prior to the Council’s knowledge of the breach.

The revised insurance rent sum was paid on 11 November 2019.

On 22 November 2019, the Council peacefully re-entered the café confirming forfeiture of the lease.

Mr and Ms Faiz disputed the ability of the Council to re-enter (forfeit) claiming that, in demanding the revised insurance rent and accepting payment of it, both of which occurred after the date on which the Council were aware of the breach, the Council was treating the lease as continuing and thereby waiving the right of forfeiture. The initial judgment found that the Council had not waived the right of forfeiture in raising the revised demand and accepting payment of the insurance rent, and so the re-entry was valid. Mr and Ms Faiz appealed.

The Grounds of Appeal

The Initial judgment was appealed by Mr and Ms Faiz on 2 grounds:-

1. First, did the acceptance of (insurance) rent after knowledge of a breach of covenant waive the right to forfeit, where

   • the rent in question had accrued due and been demanded before the landlord had knowledge of the breach; but

   • was demanded after the breach itself; and

   • the landlord accepted the rent after becoming aware of the breach?

2. Was the demand for insurance rent made on 4 November 2019 a new demand for (insurance) rent due after the landlord had acquired knowledge of the breach?

Outcome of the Appeal

Mr and Ms Faizs’ Appeal failed on both grounds.

On the first Appeal ground, the Court of Appeal held that the principle is that waiver takes place where the landlord demands or accepts rent which accrued after the date of a breach known to the landlord. Here the (insurance) rent demanded accrued prior to the knowledge of the breach.

On the second Appeal ground, the 4 November 2019 revised invoice did not amount to a fresh demand for insurance rent due, and was not a waiver of the right of forfeiture because:-

1. it demanded payment for only part of the period already covered by the September invoice;

2. it asserted that payment was due on the very day on which the invoice was sent, which is inconsistent with the norm for a fresh demand;

3. Mr and Ms Faiz cannot have thought that the Council was requiring payment under both invoices; so the second invoice must, by necessary implication, have superseded the first one.

4. Further, the November invoice was an indication by the Council that it would accept only part of the sum that had accrued due on 2 October; the Council did not know that it was accepting rent that accrued due after the date of the breach. The acceptance of the payment did not, therefore, amount to a waiver of forfeiture.

Our ongoing waiver advice

This case is a timely reminder to all about the perils of inadvertently waiving the right of forfeiture. This can happen in many ways. Waiving the right of forfeiture can seriously restrict a landlord’s options where the Lessee is in breach, but it can lead to real problems, often insurmountable, in recovering costs under the Lease too.

Please do review (by clicking the following links) our earlier articles from us on waiver including:-

• When Leaseholders are in breach - some Dos and Don’ts (and the all-important Golden Rule)

• Leaseholders selling up with unpaid service charges; and

• The deeper perils of waiver

as further guidance on how to act (or not!) when either the landlord or its agent become aware of a breach by a property owner that may give rise to an action and costs.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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