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01 Jul 2021

Losing the right to forfeit – DON’T take the money!

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The scenario

You’re the landlord of a good quality office block. The various floors of the block are let to several different tenants, and your relationship with the tenants is good.  You’re keen to maintain the quality of the block by ensuring that all of the occupants are of good quality, so, in the usual way, tenants aren’t allowed to assign or sublet without your consent.

Illegal sub-let?

It comes to your attention that one of your tenants has sublet to an unsuitable occupier, without your permission.  The tenant had been in arrears and has just sent you a substantial sum to cover the arrears.  Cash flow is tight, so you’re keen to take the rent if you can, but you remember that taking rent can mean that you lose the right to forfeit, so what can you do?

Waiving the right to forfeit

You’re right to be concerned. 

A lot will depend on the detail.  You will lose (or, as lawyers like to call it, “waive”) the right to forfeit if you know about a breach and do something which indicates that the lease still exists.  One way that you can show that the lease still exists is to demand or accept rent.

Options

So, what can you do here?

The first thing to do to enable you to decide what rents you can keep is to establish the chronology.

Here, let’s assume that the rent is payable monthly in advance, there are no grace periods and several months’ rent is due but unpaid.  Let’s also assume that the chronology is:

  • 1 January: rent due – unpaid
  • 1 February: rent due – unpaid
  • 15 February: illegal sublet – no landlord knowledge
  • 1 March: rent due – unpaid
  • 15 March: landlord aware of the illegal sublet
  • 1 April: rent due - unpaid
  • 15 April – all back rent tendered by tenant

What rents, if any, can you accept?

Let’s start with the easiest ones.

January rent

This is relatively simple.  You can accept the January rent.  It became due before the breach.

April rent

The position with the April rent is also pretty straightforward.

You can’t accept the April rent.  If you accept it then you acknowledge that the lease continued to exist after both the breach itself and your awareness of the breach.

February rent

This is trickier.

You can in fact accept the rent because it became due before the breach.  That’s the case notwithstanding the fact that the breach occurred during February and that at the time you accept the rent you’re aware of the breach.  The point is that the right to forfeit only arose on 15 February and on 1 February the entire month's rent became due and became payable in full on that day whatever happened later on in the month.

March rent

This is the trickiest – and the position has only recently been clearly determined by the Court of Appeal in in Faiz v Burnley BC [2021] EWCA Civ 55.

The answer is that you cannot accept the March rent.  You may not have known about the breach at the time the rent became due, but you will still waive the right to forfeit if, now that you have knowledge of the breach, you accept rent which fell due after the date of the breach.  The key issue here is whether the breach occurred before or after the date the rent fell due, not the date that you became aware of the breach.

What about Covid?

Covid won’t have an impact in this case, because your ground for forfeiture is the illegal sublet.  The Coronavirus Act 2020 placed a number of restrictions on the right to forfeit leases for non-payment of rent, but the Coronavirus Act doesn’t prevent forfeiture for reasons other than the non-payment of rent.

The moral… DON’T take the money!

The moral is, once you become aware of a breach that gives rise to a right to forfeit, don’t demand or accept any rent which falls due after the date of a breach. 

But the bigger takeaway is that this is tricky area of law.  It’s very tempting to take money when it’s offered, but this is a classic case of ‘act in haste and repent at leisure’.  A lot will depend on the precise facts and circumstances and our expert team would be delighted to help you navigate around the potential traps.

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