Waiving the Right to Forfeiture - Commercial Property
- AuthorJonathan Flynn
Most commercial leases enable a landlord to terminate a lease by forfeiture if the tenant breaches its obligations. Once the right to forfeit the lease has arisen, if the landlord acts in such a way so as to treat the lease as continuing it will have waived the right to forfeit the lease.
Waiver will occur where a landlord:
- is aware of a tenant’s breach;
- does an unequivocal act which recognises the lease as continuing; and
- communicates that act to the tenant.
Even the act of demanding and/or accepting rent is considered to be consistent with the continued existence of a lease and therefore sufficient to amount to waiving a right to forfeiture. Any attempt by a landlord to reserve the right to forfeit a lease is irrelevant. Landlords must therefore take great care when dealing with a tenant’s breach so as to ensure they do not jeopardise an opportunity to forfeit the lease.
Landlords may however find some comfort from the recent Court of Appeal decision in the matter of Faiz & others v Burnley Borough Council  which offered important clarification for many landlords who find themselves wanting to forfeit a lease.
The Court of Appeal supported the High Court in ruling that a landlord will not waive its right to forfeit a lease where it has demanded and accepted rent that accrued and was due prior to the breach in question. The Court of Appeal held that this would be the case even if the Landlord had knowledge of the breach at the time of the demand.
In reaching its decision, the Court of Appeal has made clear that in order for a landlord to waive its right to forfeit, the landlord must:
- be aware of the tenant’s breach; and
- demand and/or accept payment of rent which accrued after the date of the breach.
The risk of waiving the right to forfeit can be a minefield for even the most experienced landlords. Landlords would be well-advised to exercise great caution before demanding and/or accepting sums due where they are aware of any breach of the lease (irrespective of the recent Court of Appeal decision in Faiz & others v Burnley Borough Council ).
As commercial landlords will know, the recent outbreak of Coronavirus has seen the introduction of the Coronavirus Act 2020 (“the Act”) which brings with it emergency measures which concern commercial tenancies. The Act prevents landlords from exercising a right to forfeit during the Relevant Period (which began on 26 March 2020) for non-payment of rent. The Relevant Period has since been subject to several extensions with it most recently being confirmed that the moratorium is to run to 30 June 2021.
Following the seemingly endless series of extensions to the moratorium on forfeiture, many landlords may now be faced with substantial levels of rent arrears, having been prevented from taking action to forfeit their leases to regain possession from tenants unable to pay rent due to the pandemic. Landlords should be reminded however that the moratorium does not prevent them from seeking to exercise their rights of re-entry for other breaches of covenant.
Commercial landlords and tenants should be aware that the relevant period may be extended beyond 30 June 2021 by the Secretary of State or the Welsh Ministers (and that power may be exercised on more than one occasion so as to further extend the period). It is important therefore that commercial landlords and tenants keep up to date with these measures so as to ensure they are not caught out in the future.
Over the years, our team have helped numerous landlords and tenants tackle the legal challenges that have stood in their way. Please contact us if you have questions about this update and would like to discuss your options by emailing email@example.com or call 03333 208644.