A landlord waives its right to forfeit a lease when, with full knowledge of the facts, it acts in a way consistent only with the continuation of the lease. The question that arose in Faiz v Burnley Borough Council [2020] EWHC 407 (Ch) was whether a landlord had waived its right to forfeit a tenant’s lease because it had demanded the payment of insurance rent, even though it sought to forfeit the tenant’s lease.
The case concerned the lease of a café at a historic country house in Lancashire owned by the council. The council sought to forfeit the lease because the tenants had granted a sub-tenancy to a connected company in breach of the covenants in their lease. The lease itself expired on 25 February 2020 and was excluded from the protection of the Landlord and Tenant Act 1954. But the sub-lease was not – giving rise to the possibility that the sub-tenant enjoyed security of tenure even though the sub-lease was granted in breach of covenant: D’Silva v Lister House Development [1971] 1 Ch 17.
The council served a section 146 notice on the tenants on being informed of the existence of the sub-lease. And, having already invoiced the tenants for £2,845 to cover the cost of insurance for the period up to 25th February 2020, the council submitted a revised invoice for £1,826, apportioning the amount due up until 18 October 2019 (when it was informed of the existence of the sub-lease), before peaceably re-entering the premises on 22nd November 2019.
Had the council waived its right of re-entry by issuing the revised invoice for the insurance rent? In Osibanjo v Seahive Investments Ltd [2008] EWCA Civ 1282 Lord Justice Mummery suggested that landlords can accept rent due in respect of any period before the date on which they realise that the right to forfeit has arisen, without prejudicing their right to forfeit. But Lord Justice Rix took a tougher line. He thought that any acceptance of rent that accrues due in respect of any period after the right to forfeit has arisen constitutes an act of waiver if the landlord has acquired knowledge of the breach that constitutes grounds for an action for possession.
So, according to Rix LJ, to preserve their right to forfeit, landlords must refuse to accept rent once they have acquired knowledge of their right to forfeit, except in relation to periods before a once-and-for-all breach of covenant has occurred. And, in this case, the judge had concluded that the sub-lease was executed between 20th May 2019 and 18th October 2019 (although it had been back-dated to 1st August 2017). But the judge was satisfied that Mummery LJ’s observations accurately state the law and are reflected in the law as stated in Woodfall.
The judge decided that it would have been apparent to a reasonable recipient that the council was electing to limit its demand for insurance rent to the period before it had knowledge of the breach and that the revised invoice was no more than a recalculation on that basis. In those circumstances, it could not reasonably be suggested that, by delivering the revised invoice, the council was acting consistently only with the continuation of the lease. So the delivery of the revised invoice did not waive the council’s right to forfeit the lease – and the lease and sub-lease had both determined on 22 November 2019.
Allyson Colby, property law consultant
