Landlord and tenant – Forfeiture of lease – Waiver – Respondent local authority purporting to forfeit lease after appellant tenants granted sub-tenancy in breach of covenant – High Court refusing appellants’ application for declaratory relief – Appellants appealing – Whether respondent waiving right of re-entry by issuing revised invoice for insurance rent after serving notice to terminate lease – Appeal dismissed
The respondent local authority was the freehold owner of Towneley Hall, a historic country house in Lancashire. The first and second appellants held the lease of a café in the Old Stables building. The lease contained an absolute prohibition on sub-letting. However, they granted a sub-lease to the third appellant. The respondent was unaware of the sub-lease.
In September 2019, the respondent invoiced the first and second appellants for £2,845.20 in respect of insurance rent for the period ending 25 February 2020 when the lease expired. That sum was unpaid. The respondent became aware of the sub-lease on 18 October 2019 and, on 30 October, gave the appellants notice under section 146 of the Law of Property Act 1925.
On 4 November, the respondent submitted an invoice for the revised sum of £1,826.87, apportioning the insurance rents to encompass only the period up to 18 October 2019 when it was informed about the sub-lease. That invoice was paid on 11 November when the money was transferred to the respondent’s bank account.
On 22 November, the landlord purported to forfeit the lease by peaceable re-entry on the grounds that, in granting a sub-tenancy, the first and second appellants were in breach of the prohibition on subletting.
The appellants applied for a declaration that the respondent had waived its rights of re-entry. The judge held that, on the facts, the respondent had not waived the forfeiture: [2020] EWHC 407 (Ch); [2020] PLSCS 33. The appellants appealed.
Held: The appeal was dismissed.
(1) Where a tenant committed a breach of covenant which gave rise to the right to forfeit the lease, the landlord might either forfeit the lease or affirm its continuation. In order for the landlord to be put in that position he had to have knowledge of at least the basic facts which constituted the relevant breach. Subject to statutory restrictions, he might forfeit the lease either by the issue and service of a claim form claiming possession; or by peaceable re-entry. The affirmation of the lease was normally referred to as a waiver of forfeiture. Once the landlord had made his election, he could not retract it. Where the alleged act of waiver was the acceptance of rent, that was all that counted.
It was less clear whether the demand and acceptance of rent with knowledge of the breach amounted to a waiver if the rent accrued due after the breach but before the landlord had knowledge of it. There was no binding authority on the point. What entitled the landlord to forfeit the lease was a breach of covenant, whether or not he knew that the breach had been committed. In order to plead a claim to forfeit, the landlord needed to allege the existence of the lease, the terms of the relevant covenant, the existence and terms of the forfeiture clause and the fact of the breach.
It did not matter whether the rent accrued due before or after the date of the landlord’s knowledge; but whether it accrued due before or after the date of the breach of which the landlord now had knowledge. Waiver took place where the landlord demanded or accepted rent which accrued due after the date of a breach known to the landlord. Where the breach consisted of an unlawful sub-letting, the landlord had to know not only that the sub-letting had taken place, but also that the rent demanded or accepted accrued due after the date of the breach: Matthews v Smallwood [1910] 1 Ch 777 and Osibanjo v Seahive Investments Ltd [2008] EWCA Civ 1282; [2009] 1 EGLR 32 considered.
(2) In the present case, the first invoice was sent on 26 September 2019 and the insurance premium became due on 2 October. The judge’s finding that the sub-lease was granted (and hence the breach took place) “prior to late September or early October 2019” did not allow the appeal court to reach the conclusion that the breach took place before the insurance rent became due. Thus, the insurance rent could have become due before the date of the breach. Since the burden of proof in establishing waiver lay on the appellants, they had not discharged that burden.
In addition, at the date when the insurance rent accrued due, the respondent could not have known that the breach had already taken place, since the existence of the breach (whenever it took place) was not revealed until 18 October. That demand for the insurance rent could not, therefore, have amounted to a waiver of the forfeiture.
(3) The 4 November invoice did not amount to a fresh demand for insurance rent due under the lease. It demanded payment for only part of the period already covered by the September invoice. It asserted that payment was due on the very day on which the invoice was sent, which was inconsistent with the contractual machinery for a fresh demand. Moreover, the appellants could not have thought that the respondent was requiring payment under both invoices; the second invoice, by necessary implication, had to have superseded the first one. The November invoice could only have been an indication by the respondent that it was willing to accept a lower sum than that which had been previously demanded under the September invoice. Accordingly, it did not amount to a waiver of the forfeiture.
In this case the respondent was paid (and accepted the payment) on 11 November 2019. The respondent’s state of knowledge on 11 November was that a breach had taken place. But it did not know when that breach had taken place, except that that it must have been on or before 18 October. If the November invoice was an indication by the respondent that it would accept only part of the sum that had accrued due on 2 October, it followed that the respondent did not know that it was accepting rent that accrued due after the date of the breach. Therefore, the acceptance of the payment did not amount to a waiver.
Mark Cawson QC and Philip Byrne (instructed by Betesh Middleton Law, of Manchester) appeared for the appellants; David Berkley QC (instructed by Burnley Borough Council Legal Department) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Faiz and others v Burnley Borough Council
