Waiving goodbye to a right to forfeit?

In a tough economic climate, landlords have a difficult balance to strike between keeping properties occupied but making sure that rent is received from them. It pays to know what you can and cannot do. Property litigation expert, Nick Cox reports on some timely guidance provided by the Court of Appeal in the case of Osibanjo v Seahive Investments.

The Background

In general, if a landlord accepts rent when he knows that the tenant has committed a breach of covenant, then he is deemed to have waived the right to bring the lease to an end by forfeiture. This is an objective test , so if the ordinary man would conclude that the landlord knew of the breach yet accepted the rent, it would be taken that he had passed over the right to bring the lease to an end.

This would not stop him trying to recover any arrears of rent by other means, or seeking to prevent the breach in another way.

In the appeal case, the landlord, Seahive, served a statutory demand for rent arrears in November 2005, a common tactic. Mr Osibanjo made only partial payment and in January 2006 Seahive filed a bankruptcy petition against him.

It was a full six months later that Seahive’s surveyor inspected and discovered a host of breaches, including unauthorised alterations and change of use. Nothing happened until October 2006, when Ojibanjo sent a cheque for £10,000 to settle the £3,414 still due under the claim in bankruptcy and on account of rent.

Seahive’s solicitors banked the cheque but advised Ojibanjo that this did not amount to a waiver of the breaches discovered in June. Crucially they also returned the balance to Ojibanjo. The bankruptcy petition was dismissed.
When, a month later, Ojibanjo paid further rent, Seahive returned the cheque and issued forfeiture proceedings. The county court ordered possession.

Dismissing Ojibanjo’s appeal, the court made it clear that Seahive had not waived the right to forfeit simply by banking a cheque. They had not accepted the payment as rent at the time they knew of the other breaches of covenant. The fact that the other breaches were continuing was also a factor.

The case highlights the difficulties sometimes faced by landlords when offered money by defaulting tenants. They still need to think very carefully about how they respond and what their objective might be. Had all this happened a few years on in 2009, we suspect Seahive might have taken a different view when being offered substantial rent!

Partner Nick Cox specialises in commercial contract disputes and has particular expertise in contentious landlord and tenant work. He is a member of the Property Litigation Association and an ADR Group-accredited mediator.  nicholas.cox@willans.co.uk

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