Unintentionally waiving the right to forfeiture – landlords to tread carefully

Upon the occurrence of a forfeiture event, landlords seeking to take advantage of the event will need to tread carefully to ensure that the right to forfeiture is not lost inadvertently through the waiver.

Waiver occurs when a landlord, with knowledge of a forfeiture event, acts in a way that is communicated to the tenant, to recognise the continued existence of the lease. The danger for a landlord is that such knowledge could be inferred if someone within the landlord’s organisation has knowledge of the forfeiture event even if the landlord itself had no knowledge.

Once knowledge of the right to forfeit has been acquired, landlords must preserve it by refusing to accept all rents, except in relation to periods before a “once-and-for-all” breach of covenant.

Acceptance of rent that accrued due before a forfeiture event will not amount to waiver because the landlord is entitled to this rent.

These issues were recently explored in the case of Faiz v Burnley Borough Council [2021]. The tenant, in this case, had sub-let premises, in breach of an absolute covenant, at some point between September 2019 and early October 2019. The landlord first became aware of the unlawful sub-letting on 18 October 2019 when the tenant sent it a copy of the sub-lease.

Prior to that, in late September, the landlord had made a demand for insurance rent for the remainder of the lease term. The demand fell due for payment on 2 October 2019. When the landlord learnt of the unlawful sub-letting, it served notice on the tenant on 30 October 2019 to forfeit the lease as a consequence of the covenant breach. Perhaps mindful of the risk of waiver, the landlord issued a revised insurance rent demand to require payment up to the period ending on 18 October. The tenant argued that the sending of a further demand operated to waive the landlord’s right to forfeit.

The Court of Appeal and the High Court agreed that the revised insurance rent demand would have been understood by a reasonable recipient to have been no more than a re-calculation of the first demand and could not, therefore, amount to a waiver. The main issue for determination was whether the first demand for insurance rent was a demand for rent accruing due after the date of the tenant’s breach of covenant and, if so, could it amount to a waiver of the right to forfeit if the landlord had no knowledge of the breach at the time of the demand.

On the established facts, the landlord’s demand for insurance rent was arguably for rent falling due before the breach of the covenant had occurred (the sub-lease could have been granted in early October, which could have been after 2 October when the demand for insurance rent payment fell due). It was the tenant’s burden to prove the waiver on the facts and it had not done so. In relation to rents accruing due after the date of a forfeiture event, the Court stated the principle is that waiver takes place where the landlord demands or accepts rent at a time when the breach is known to the landlord.