Does demanding rent waive the right to forfeit? (was Lord Neuberger always right?)

Articles
24 Jan 2022

Peter Petts considers whether a demand for rent should be treated with the same strictness as accepting rent when it comes to the right to forfeit a lease.

As the former President of the Supreme Court and, more importantly, the former President of this august association, it may seem impertinent to question Lord Neuberger’s jurisprudential thinking on whether a demand for rent should be treated with the same strictness as accepting rent when it comes to waiving the right to forfeit a lease.  However, the topic is worthy of respectful consideration.

In respect of waiver of the right to forfeit, generally (and not wishing to teach anyone to suck eggs), upon a forfeitable breach of a lease, the landlord must elect whether to treat the lease as being at an end or to continue with its performance, despite the breach.  The latter is the waiver of the right to forfeit, which has three essential components: (1) with knowledge of the breach, (2) the landlord communicates to the tenant, (3) an unequivocal recognition of the subsistence of the lease.

A landlord may expressly inform the tenant that, despite the breach, he is going to continue with the performance of the lease and hold the tenant to the performance of his covenants.  Such a situation is relatively straightforward.  What is more complicated is whether a waiver of the right to forfeit should be inferred from the landlord’s conduct, once he has knowledge of the breach.

For such conduct to amount to a waiver, it must be “so unequivocal that, when considered objectively, it could only be regarded as having been done consistently with the continued existence of a tenancy”: per Slade LJ in Expert Clothing Service Sales Ltd v. Hillgate House Ltd. [1986] 1 Ch 340.  The court considers all the circumstances of the case, when making its determination as to whether the landlord’s conduct can only be consistent with the continuation of the lease.  This is quite a high hurdle for the tenant to overcome.

However, the acceptance of rent falls into a special category.  If it is accepted for a period after a breach, with knowledge of that breach, it will automatically amount to a waiver.  There is no question of analysing the landlord’s conduct.  The strict application of this principle has its roots in the feudal system of land ownership and was developed in a time when the power to grant relief from forfeiture was much more restricted than it is now.   Despite the courts’ latter-day, broad, statutory and equitable discretion to grant relief, there is no sign of the attenuation of the strictness of the principle.

What about demanding rent with knowledge of a breach? The perceived wisdom is that a demand should be treated with the same stringency as the acceptance of rent, namely: a demand sent by a landlord, with knowledge of the breach, received by the tenant automatically waives the right to forfeit.

In Expert Clothing Service Sales Ltd v. Hillgate House Ltd. [1986] 1 Ch 340 at 343C, David Neuberger submitted a demand for rent operates as a waiver.  Slade LJ was content to assume that was correct, without deciding the point.

In Yorkshire Metropolitan Properties Ltd. v Co-Operative Retail Services Ltd. [2001] L. & T.R. 26, Neuberger J. was prepared to proceed on the assumption that a demand for rent operated as a waiver.

In Thomas v Ken Thomas Ltd. [2007] L. & T.R. 21, Neuberger LJ considered, albeit obiter, that a demand for rent is a classic way in which a landlord can waive the right to forfeit.

I may be unfairly singling out Lord Neuberger, as he now is.  There are first instance decisions dating back nearly 200 years that a demand for rent is as good as acceptance of rent; and there are Court of Appeal cases, including Expert Clothing, where it has been prepared to assume that was correct without deciding the point.

Part of the problem is that the arguments put forward in support of a demand for rent operating as a waiver can be traced back to the obiter comments of Parke B. in Doe d. Nash v Birch 150 E.R. 490, in 1836, a case which did not turn on the demand for rent.  Another issue is that authorities cited by advocates and judges, alike, in support of the proposition, relate to the demand and acceptance of rent, not just a bare demand.  The currently perceived wisdom does not, therefore, have particularly strong foundations.

Returning to Neuberger J., in Yorkshire Metropolitan Properties, he was not prepared to accept that demands for service charge and insurance, although recoverable in the same manner as rent (not as rent), would waive the right to forfeit, commenting, “However, in relation to something like an insurance premium, particularly in the context of a substantial landlord with many properties…a demand bears the hallmarks of a routine administrative act”.

Is not the demand of ground rent under a long, residential lease more routine than a considered demand for a contribution to the service charge expenditure? Even in the context of commercial rents, the demands are invariably computer generated, nowadays; not just a routine administrative act, but an automated one.

It should also be remembered that is the acceptance of rent which waives, not its receipt: payments may be, and usually are, made electronically, without the landlord’s knowledge.  Such a payment does not amount to the acceptance of rent until, objectively, the landlord has knowledge of the payment and has retained it.  A situation which is quite different to a computer-generated demand.

The consequences of the acceptance of rent not amounting to a waiver can be far more inequitable than those of demanding it not amounting to a waiver.  If a landlord, with knowledge of a breach, accepts the quarter rent in advance, on 25th March, and peaceably re-enters the following day on the grounds of the antecedent breach, absent an apportionment provision in the lease, the tenant will have been put out of possession and lost that quarter’s rent.  No such injustice arises with a mere demand for rent.

As Neuberger J. noted in the Yorkshire Metropolitan case, the strict rule that the acceptance of rent amounts to a waiver was developed at a time when the power to grant relief from forfeiture was very much more restricted than it is now.  There is, therefore, little, if any, justification for extending the principles relating to the acceptance of rent into realms of demanding rent.

That is not to say that a demand for rent should not be a factor which a court may take into account when considering whether the totality of the landlord’s conduct amounts to an unequivocal recognition of the subsistence of the lease.  However, to elevate a demand for rent to the same status as an acceptance of rent, with its strict consequences, is, with greatest of respect to the former President (and many other judges), wrong in principle.

However, until such time as the Court of Appeal or Supreme Court says otherwise, the County Court, which predominantly deals with landlord and tenant matters, is bound by the High Court decisions (e.g. Segal Securities Ltd. v Thoseby [1963] 1 Q.B. 887).

First published for the PLA in January 2022.

Author

Peter Petts

Peter Petts

Call: 1998

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