If a ground for forfeiture exists, a landlord may waive its right to forfeit the tenant’s lease. Waiver occurs where, in full knowledge of the facts, a landlord does something unequivocal that, viewed objectively, is consistent with an intention to treat the lease as continuing. The right to forfeit is often waived by the acceptance of rent. It is irrelevant that the landlord did not intend to waive the breach of covenant or accepted the rent mistakenly. As a matter of law, the fact that the landlord has accepted rent, in knowledge of the breach, constitutes an affirmation of the lease.
The litigation in Seahive Investments Ltd v Osibanjo [2008] EWCA Civ 1282; [2008] PLSCS 318 turned on whether a landlord had waived its right to forfeit because it had accepted a cheque for £10,000, presented it for payment, retained an amount due to it and then returned the balance, instead of accepting that balance in partial payment of arrears of rent owed by the tenant. The sum that the landlord accepted corresponded to arrears of rent that had accrued some months earlier, in respect of which it had served a statutory demand and issued bankruptcy proceedings. It then became aware of breaches of user and other covenants that constituted grounds for forfeiture of the tenant’s lease.
The tenant argued that the landlord had waived its right to forfeit because it had banked the cheque for £10,000. The tenant also relied upon the fact that the landlord had kept another cheque for a week before returning it unpresented. The Court of Appeal disagreed. It was impossible for the landlord to discharge the bankruptcy debt as the tenant had asked it to do, so that the bankruptcy proceedings could be dismissed, without processing the cheque for £10,000. The landlord had acted promptly after the cheque had been processed. Consequently, an objective observer could not have supposed that the landlord had accepted the balance proffered as rent. Their lordships also agreed that, unless the circumstances are exceptional, the receipt of a cheque that remains unpresented does not constitute an act of waiver.
Landlords will welcome the decision, but will regret the fact that their lordships differed on one important point. Mummery LJ took the view that landlords can accept rent due in respect of any period before the date upon which the landlord realises that the right to forfeit has arisen without prejudicing their right to forfeit. Rix LJ took a tougher line. He thought that any acceptance of rent that accrues due in respect of any period after the right to forfeit has arisen constitutes an act of waiver if the landlord has acquired knowledge of the breach that constitutes grounds for an action for possession. If Rix LJ is correct, to preserve their right to forfeit, once they have acquired knowledge of their right to do so, landlords must not accept rent except for periods before a once-and-for-all breach of covenant has occurred.
Allyson Colby is a property law consultant
