A landlord’s right to forfeit a lease is subject to several pre-conditions. First, the lease must contain an express term allowing re-entry for breach of covenant; second, the tenant must be in breach of a covenant in its lease; and third, the landlord must not have waived its right to forfeit the lease.
A landlord waives its right to forfeit a lease if it unequivocally affirms the existence of the lease, in full knowledge that the tenant has committed a once-and-for-all breach of covenant. The grant of a licence to assign or sublet will operate as an affirmation of the lease, as will the acceptance of rent that falls due after the date upon which the right to forfeit arose. However, if the landlord merely accepts rent that was due before the right arose, no waiver will have arisen.
In Greenwood Reversions Ltd v World Environment Foundation [2008] EWCA Civ 47; [2008] PLSCS 31 it was clear that the landlord had not intended to waive its right of forfeiture. It had even stopped demanding rent so as to preserve its right to forfeit the lease. What, therefore, was the effect of a solicitor’s letter threatening forfeiture proceedings unless all outstanding sums due to the landlord (which plainly included sums due after an unlawful assignment) were discharged?
The tenant argued that a demand for rent had the same effect as the acceptance of rent, and that the strict rules applicable to the payment of rent applied to the demand. It relied upon first instance decisions that demands for future rent, made in the full knowledge of a breach of covenant, operated in the same way as the receipt of rent and constituted an election to treat the tenancy as continuing.
Surprisingly, the point has never been tested in a higher court. The Court of Appeal ruled that it did not need to consider the point for two reasons. First, the assignment operated to vest the lease in the assignee, and the landlord’s solicitor had not actually demanded rent from the assignee. The demand for unpaid rent and service charges was made of the previous tenant (who remained liable in contract to the landlord), and was copied only to the actual lessee. Second, the letter could not be interpreted as unequivocal confirmation that the landlord was electing to affirm the lease. The letter threatened forfeiture proceedings unless the arrears were discharged, and made it quite clear that only upon payment of the rent would the landlord accept the tenancy as continuing.
Historically, English courts have tended to lean against forfeiture. Consequently, landlords are wary of demanding rent if tenants have committed once-and-for-all breaches of covenant. The Court of Appeal proceeded on the assumption that an unqualified demand for future rent will operate as a waiver. This decision may appear to give landlords greater room for manoeuvre if demands are equivocal, but they would be well-advised to err on the side of caution so as to preserve forfeiture rights.
Allyson Colby is a property law consultant
