Lease of commercial premises – Forfeiture – Arrears of rent – Bankruptcy petition by respondent landlord against appellant tenants – Breaches of covenant – One tenant paying bankruptcy sum and other rent arrears by cheque – Landlord processing cheque, retaining bankruptcy sum but repaying remainder – Whether acceptance of rent waiving right to forfeit for breaches of covenant of which landlord aware – Whether bankruptcy proceedings amounting to waiver – Appeal dismissed
The respondent was the landlord and the appellant was one of the tenants under a lease of public house/restaurant premises for a term of 16 years to 2014. In 2005, the respondent made a statutory demand for arrears of rent. When the demand was not met, it presented a bankruptcy petition against the appellant. In June 2006, it became aware of various breaches of the tenant’s covenants. Shortly before the hearing of the petition, the appellant sent a cheque for £10,000 to the respondent’s former solicitor to discharge the outstanding bankruptcy sum, with the remainder being part payment of other rent arrears. The solicitor informed the appellant by letter that the respondent had retained the sum of £3,414.80, representing the bankruptcy debt, but had returned the balance. The letter stated that the clearance of the appellant’s cheque should not be regarded as a waiver of the respondent’s right to forfeit the lease, and informed the appellant that the respondent would attend the bankruptcy hearing scheduled for the next day and request dismissal of its petition. The petititon was duly dismissed.
The appellant subsequently sent a further cheque, which was returned. In 2007, the respondent brought proceedings to forfeit the lease. Allowing the claim, the judge rejected the appellant’s submission that the respondent had waived the right to forfeit by banking the first cheque instead of returning it, holding that it was not intended by the respondent, or treated by the appellant, as an acceptance of rent.
On appeal, the appellant argued further points that: (i) the pursuit of the bankruptcy petition amounted to a waiver of forfeiture, as an alternative cause of action pursued with knowledge of the breaches; and (ii) since the bankruptcy sum represented arrears of rent, acceptance of that sum amounted to waiver by acceptance of rent in the knowledge of breaches of covenant, albeit that the sum in question represented rent that had fallen due prior to the respondent obtaining such knowledge.
Held: The appeal was dismissed.
(1) The processing of a cheque was not in itself conclusive of the question of whether the payment was accepted as rent. For waiver of forfeiture to take place, a payment had to be accepted by the landlord and specifically as rent. Since only a part of the sum realised by banking the cheque had been accepted, and that part had been paid by the appellant and accepted by the respondent for the purpose of securing dismissal of the bankruptcy petition, it did not mean that the respondent accepted the balance as rent. It had not been possible for the respondent to separate the two liabilities in respect of which the first cheque was expressly stated by the appellant to have been sent without first processing the cheque. It had been necessary to process it in order to secure the dismissal of the bankruptcy petition, which had been important to the appellant since the making of a bankruptcy order would have been an event occasioning forfeiture. The basis for dividing the sum set out in the cheque had been made clear by the appellant in his covering letter, as it had been in the reply sent by the respondent’s solicitor promptly after processing the cheque. In those circumstances, an objective observer would have no grounds for supposing that the amount repaid by the respondent to the appellant had been accepted as rent.
(2) The bankruptcy proceedings did not amount to a waiver of forfeiture. They had been commenced before the respondent knew of the breaches of covenant and had been brought for the purpose of showing that the appellant was unable to pay his debts. If bankruptcy proceedings could amount to waiver, a landlord would be unable to forfeit for bankruptcy since the very process of making a tenant bankrupt would itself waive the right.
(3) Acceptance of the bankruptcy sum did not amount to waiver by acceptance of rent since the arrears upon which the bankruptcy petition was based related to a rent period prior to the respondent’s knowledge of the breaches of covenant. There could be no waiver of the right to forfeit if the relevant arrears preceded the landlord’s acquisition of knowledge of breach. In any event, an acceptance of rent would not prevent a landlord from forfeiting in respect of any breaches of covenant that were continuing in nature because the landlord could take advantage of a subsequent continuation of the breach.
The appellant appeared in person; Joseph Harper QC and Myriam Stacey (instructed by Webster Dixon LLP) appeared for the respondent.
Sally Dobson, barrister
