Don’t ‘waive’ goodbye to your forfeiture rights

Most landlords are aware that if a tenant is in breach of its lease – say by failing to pay rent – they have a right to forfeit (terminate) the lease. However, landlords may not be aware that the right to forfeit can be very easily lost by the landlord waiving that right, often accidentally.

When will a waiver occur?

Typically, waiver occurs where a landlord has knowledge of the breach but performs an ‘act’ which recognises the lease as continuing and communicates that to the tenant.

Once a tenant is in breach, a landlord must make an election to forfeit the lease as soon as it becomes aware of the breach, or it can treat the lease as continuing by waiving the right to forfeit. The landlord will be irrevocably bound by its election – although if the breach is a ‘continuing’ breach (such as a breach of the repair covenant) rather than a ‘once and for all’ breach (such as the non-payment of rent), a fresh right of forfeiture will accrue each day the breach continues.

In most cases, the landlord’s act of waiver will be a demand for or an acceptance of rent. It is now well established that the demand and acceptance of rent which fell due before the date of the tenant’s breach of obligation will not waive the right to forfeit in respect of that breach. Therefore, to amount to a waiver  the rent must have accrued after the date of the breach of obligation and the landlord must have knowledge (actual or imputed) of that breach.

The recent Court of Appeal decision in Faiz v Burnley BC [2021] also provides clarification on when a waiver will occur. It confirms that if the landlord has knowledge of the breach and accepts rent falling due after the date of the breach, waiver will occur even if the landlord did not know of the breach on the date when the rent in question fell due.

Given the above, landlords are  often nervous about accepting or demanding any rent at all from their tenants as soon as forfeiture becomes a potential option. Conduct which has been held to amount to a waiver includes where:

• the landlord has accepted rent from a third party on behalf of the tenant;
• rent has been accepted by the landlord’s agent – even when it was not instructed to accept it;
• rent has been accepted ‘without prejudice’ to the landlord’s right to forfeit.

Watch out for automatic processing

Given how easy it is to waive the right to forfeit therefore, landlords should be extremely careful and consider any automatic rent demand processes – a demand for rent falling due after the breach of covenant may well amount to a waiver. Landlords should also consider putting a ‘rent stop’ in place to avoid inadvertently accepting rent and should generally immediately reject any rent payments made or return them as soon as circumstances permit.

Whilst forfeiture is a very valuable tool, it can be a tricky area to navigate given the legal complexities surrounding potential waiver. Seek specialist legal advice to best protect your options and to ensure that you do not waive them goodbye.