The right to forfeit and recover possession of a leasehold property is, even in this depressed market, an extremely important weapon in the landlord’s armoury when faced with a tenant who is determined to act in breach of his obligations. However, the right is not to be exercised lightly and the landlord must obtain proper advice before embarking on this course of action. Two recent cases: Iperion Investments Corporation v Broadwalk House Residents Ltd [2] 2 EGLR 235 (“Iperion”) and Van Haarlam v Kasner [1992] 36 EG 135 (“Van Haarlam”) illustrate a potential trap to the unwary, namely inadvertently waiving the breach complained of.
When does the right of forfeiture arise?
The landlord must decide if he wants to repossess the property because, if he is unable to immediately let it, then, in the case of commercial premises, he will be faced with an instant loss of income and also possible liability for empty business rates if the property remains empty after six months.
Assuming that he does want to repossess the property, the lease should be carefully checked to ensure that it contains an express right of re-entry in case of default by the tenant. If, exceptionally, there is no express right then there is no implied right of re-entry.
The landlord must overcome three hurdles before being able to repossess:
(a) the act giving rise to the right to forfeit must have occurred;
(b) any necessary procedural steps must have been complied with; and
(c) the right to forfeit must still subsist, ie the breach must not have been waived.
Under (b) the landlord must serve a notice in writing on the tenant complying with the requirements of section 146 of the Law of Property Act 1925. No notice is required if the breach is for non-payment of rent (section 146(11)). Nor is a notice required in the case of bankruptcy or liquidation in certain special cases, eg if the property is a public house or where the personal qualifications of the tenant are vital for the preservation of the value or character of the property or neighbourhood (section 146(9)).
The section 146 notice must specify the particular breach complained of and require the tenant to remedy the breach if it is capable of remedy and/or to make compensation in money. The right of re-entry is enforceable only if the tenant fails to remedy the breach (if remediable) within a reasonable period of time.
If the breach is remediable then the time-limit specified in the section 146 notice must be reasonable otherwise the notice will be bad. For example, if the breach goes to repair then a landlord should take his surveyor’s advice on what will be a reasonable time to specify in the notice, such time to provide for the tenant to prepare a specification, go out to tender, instruct contractors as well as actually complete the works.
If the time specified in the section 146 notice is held to be unreasonable and the landlord re-entered peacefully at the end of that time period then the re-entry is unlawful and the landlord runs the risk of being found liable to the tenant in damages for any loss that may flow from the unlawful act subject to the usual rules relating to remoteness of damage.
While the time period in the section 146 notice is running a prudent landlord should not demand and accept rent as the actual forfeiture can take place only after the expiration of the time period. After the period has expired a landlord must not demand or accept rent as this will be a waiver. As a general rule, a “stop” should be placed on the demand and/or acceptance of rent immediately a landlord has knowledge of a breach in order to avoid any allegation of waiver.
If the breach goes to repair and the lease is granted for a term of seven years or more with at least three years unexpired at the date of the section 146 notice then the notice must comply with the Leasehold Property (Repairs) Act 1938. As most readers will know, this imposes restrictions on actions for forfeiture (and damages) based on a failure to comply with a covenant to keep or put the premises in repair during the term.
What constitutes a waiver?
A landlord will be regarded as waiving the right to forfeit where, having notice or knowledge of the breach in question, he does any unequivocal act which indicates that the lease is to be treated as continuing. Some positive act must be done – if the landlord is passive and does nothing after knowing of the breach this will not be a waiver. It is important to realise that a landlord may be imputed with the knowledge of his managing agent or caretaker: see Henry Smith’s Charity Trustees v Willson [3] 2 WLR 77.
Where a landlord knows of facts which may be consistent with a breach of covenant and, after inquiry, he is persuaded by the tenant that no breach has been committed then this will not amount to knowledge of the breach: see Chrisdell Ltd v Johnson [7] 54 P&CR 257.
Acts held to constitute a waiver
The courts have held that the following acts, inter alia, constitute a waiver: demanding and accepting rent after the event giving rise to the right to forfeit; serving notices (other than a section 146 notice) under the provisions of the lease; levying distress, granting licence to assign or sublet; and requesting an injunction rather than seeking possession in court proceedings.
“Continuing” v “Once and for all” breaches
If the breach of covenant has been waived all may not be lost if the breach is a “continuing” rather than a “once and for all” breach. If the breach is continuing then, despite a waiver, the right to forfeit arises again if a new breach is committed. The landlord can once again decide whether to terminate the lease. The table below gives an illustration of generally encountered breaches.
Where the breach is a once and for all breach then the right to forfeit after a waiver will be lost. A fresh right to forfeit will arise if the tenant commits a fresh breach. If this should happen then a landlord will still have to comply with the three hurdles (a) to (c) above and serve a fresh section 146 notice in respect of the new breach. If the breach is continuing then, despite a waiver, a landlord does not have to reserve a section 146 notice provided the breach has continued without interruption: see Greenwich London Borough Council v Discreet Selling Estates Ltd [0] 2 EGLR 65. Thus, the practical solution if there is any doubt as to the validity of a section 146 notice already served is to serve a fresh one without prejudice to the validity of the first one.
What happens if there is a change in tenant after the breach occurred: will the assignee be ersonally liable? Again, it depends on the nature of the breach. In the case of a continuing breach (eg failure to repair) the assignee will, in practice, be liable to remedy breaches which originated before the assignment to him, but which have continued after that time. However, a new tenant will not be liable for a once and for all breach committed by a predecessor: see A & D London & Country Ltd v Wilfred Sportsman Ltd [9] 3 All ER 621. However, although these principles concern the personal liability of the assignee, in addition the landlord will be entitled to forfeit (provided there has been no waiver) if he can establish the breach of covenant; it does not matter who has broken it.
Iperion and Van Haarlam neatly illustrate some of the basic principles discussed above.
The brief facts at the Van Haarlam case were that on April 2 1988 the tenant was arrested and charged with various offences under the Official Secrets Acts. His lease contained the usual provision for forfeiture and a covenant by the tenant that he would not use the premises for any illegal or immoral purposes. On May 23 1988 a demand for ground rent from June 24 1988 was sent to the tenant, which was duly paid on June 17 by the tenant’s solicitor. A further demand was issued by the landlord on November 21, which was eventually paid the following year on February 13. On March 3 1989 the plaintiff was convicted and sentenced to 10 years imprisonment. A notice satisfying the provisions of section 146 was served on the tenant on December 8 1989.
Harman J held that the demands and acceptance of rent in respect of the June 1988 and December 1988 rent were sufficient acts which amounted to an affirmation of the tenancy and waived the right of forfeiture. When the demands had been sent, the landlord had actual knowledge that the tenant had been arrested for offences which were founded in breach of the covenant and founded the right to forfeit.
An interesting point of Harman J’s judgment was his view that the landlord did not have to wait until the tenant was convicted before forfeiting the lease of the flat because of the different standards of proof required by the civil and criminal courts:
Plainly, if there was knowledge of illegal activities in the flat, that knowledge has to be proved only to a civil court in forfeiture proceedings on the balance of probabilities. There is no question of any presumption of innocence having anything to do with the matter…
The facts of the Iperion case are somewhat more complex and parts of the 84-page judgment were on other matters not the subject of this article. In 1980 the tenant took an assignment of a 99-year lease for a penthouse flat at a considerable premium. Subsequently, the tenant wished to carry out extensive alterations. The terms of its lease absolutely prohibited the tenant from making any structural alterations affecting the elevation or external appearance of the premises, but other non-structural alterations could be made only with the written consent of the landlord. A fire badly damaged the flat in 1989 and this provided an excuse for the tenant to commence the works without the landlord’s consent.
The tenant commenced work knowing that the chairman of the landlord would be away on holiday. The landlord was faced with no alternative but to serve a section 146 notice and when this had no effect the landlord commenced proceedings for an injunction to stop the work. Various meetings took place to resolve the dispute and the tenant promised not to continue with the work until the superior landlord’s consent had been obtained. After this meeting service charge payments were demanded by the landlord, and these were paid by the tenant shortly after demand. Eventually, the landlord peaceably re-entered the premises and the tenant applied for a declaration as to whether the lease had been forfeited.
The tenant did not dispute that it was in breach of the covenants against alterations. However, it argued that the landlord had waived its right to forfeit the lease. The landlord argued that the breach of a covenant against alterations was a progressive one on the grounds that it involved a continuing programme of works until the overall scheme was completed. Thus, the right to forfeit had not been waived by the acceptance of rent after the service of the section 146 notice.
The judge rejected the landlord’s submissions and held that, by accepting rent, the landlord had waived the right to forfeit for the breaches of which it was aware. Mr Recorder Mauleverer QC also held that the landlord had waived its right to forfeit by the action it had taken during the course of the dispute, ie by commencing proceedings for an injunction, by restoring those proceedings, by seeking an undertaking for the tenant not to continue with the works and by obtaining access under the terms of the undertaking.
Perhaps the landlord in the case should have been better advised to commence forfeiture proceedings immediately and, after these had been served and the lease forfeit, then to have applied for an injunction pending the giving of possession. It is suggested that this sequence of events would not have amounted to a waiver.
Conclusion
Consequently, though these two cases do not establish any new points of law, they do serve as a timely warning to landlords, managing agents and their professional advisers to be extremely careful to make sure that, if other legal remedies are chosen besides forfeiture, then these must not be incompatible as happened in Iperion. A landlord must obtain clear professional advice at the very outset of the dispute and must not be pressurised by the absence of rental income to think he can send a demand for rent and still preserve his right to forfeit in the case of a “once and for all” breach. Managing agents must also ensure that they have adequate checks on their internal systems to place a “stop” on the rent and prevent the inadvertent issue of a rent demand or acceptance of a payment which could waive the landlord’s right to forfeit.
Martin Codd LLB is an assistant solicitor and Jonathan Cantor BA is a partner with Binks Stern.
