The Court of Appeal considers the relationship between breaches of covenant, the landlord’s knowledge and demands for or acceptance of rent
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 [2021] EWCA Civ 55; [2021] PLSCS 19 was whether a landlord had waived its right to forfeit a tenant’s lease because it demanded the payment of insurance rent, even though it was seeking to forfeit the lease.
The case concerned a café at a historic country house in Lancashire owned by the council. The council let the café to tenants, who granted a sub-tenancy at some point in time between 20 May 2019 and early October 2019, in breach of the alienation covenants in their lease. They informed the council that they had done so on 18 October 2019, and the council responded by serving a section 146 notice.
Meanwhile, having already invoiced the tenants for £2,845 to cover the cost of insurance for the period up to 25 February 2020, the council submitted a revised invoice for £1,826, apportioning the amount due up until 18 October 2019. That sum was paid to and accepted by the council on 11 November 2019, before it re-entered the premises on 22 November 2019.
Had the council waived its right of re-entry by issuing the revised invoice and/or by accepting payment for it? It is well settled that the acceptance of rent that accrues due after the date on which a landlord has knowledge of a breach of covenant amounts to a waiver. But it is less clear whether the demand and acceptance of rent with knowledge of the breach amounts to a waiver if the rent accrued due after the breach, but before the landlord had knowledge of it. The textbooks differ, as did Lord Justices Mummery and Rix in Osibanjo v Seahive Investments Ltd [2008] EWCA Civ 1282, and the point has never been decided.
The Court of Appeal noted that a landlord cannot waive a breach of covenant without knowledge of it, before ruling 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, the court considered 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.
The council submitted its original invoice in September 2019, and it became due for payment on 2 October. But it was unclear exactly when the sub-lease was granted. It could have been granted on 5 or 6 October, after the payment fell due. And the council knew nothing about the sub-lease until the tenants informed them of it on 18 October 2019. So the submission of the original invoice did not affect the council’s right to forfeit its tenants’ lease.
The revised demand for insurance was submitted on 4 November. But the Court of Appeal decided that it was not a fresh demand; it simply indicated that the council was prepared to accept payment for part of the period covered by the original invoice. And, although the council accepted payment on 11 November, it was a part-payment of the sum that fell due on 2 October and the council had not knowingly accepted rent accruing due after the date of the breach. Therefore, the council had not waived its right to forfeit the lease.
Allyson Colby is a property law consultant
