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Archive for June, 2009

Accept rent and wave goodbye to right to forfeit

A tenant, in breaching a covenant in its lease, runs the risk that the landlord will forfeit the term.  Forfeiture is at the option of the landlord but once it is indicated to the tenant that the lease is to continue, the landlord may waive its right to forfeit.

There have long been legal arguments about waiver but it appears clear that acceptance of rent by a landlord after knowledge of circumstances founding a right to forfeit is regarded as evidence of an intention to allow the tenancy to continue.  Arguments abound about, for instance, when the landlord has, or is deemed to have, the requisite knowledge of the breach and whether the breach is a once and for all breach or a continuing breach.  However, the recent Court of Appeal case of Seahive Investments Ltd v Osibanjo and another [2008] EWCA 1282 highlighted other difficulties i.e. whether it mattered that the rent accepted fell due before or after the landlord’s knowledge of the breach relied upon to ground the forfeiture and what amounted to acceptance of rent.

In the Seahive case, the landlord presented a bankruptcy petition against the tenant for unpaid rent.  The landlord subsequently became aware of other breaches of covenant.  The tenant submitted a cheque in settlement of both the petition sum and a smaller amount for other rental payments.  The landlord accepted the cheque but returned a sum equating to the other rental payments.  The tenant claimed waiver.  The judge found the monies retained by the landlord were not in payment of rent (but in settlement of the bankruptcy debt) and in consequence the Court of Appeal agreed there had been no waiver.  Practitioners will regret that their Lordships failed to agree upon whether or not the landlord could have accepted rent which fell due prior to becoming aware of the other breaches of covenant and not waive the right to forfeit.

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