Landlords have the right to forfeit the lease of tenants who fail to pay their service charge. Liz Rowen, Legal Director and Head of the Residential Property Management team at UK-top 200 Yorkshire law firm Keebles LLP, explains why a recent forfeiture case ruled in favour of the tenant and what lessons landlords can learn.
In dealing with the collection of service charges from defaulting leaseholders or indeed any breach of lease, one of the strongest tools in the armoury of any landlord is their right to forfeit the lease of the defaulting tenant. This tactic can be used as long as the lease allows for the right to re-entry.
There are, however, pitfalls to forfeiture and landlords will be aware that if the right to forfeit is waived, that ends any action they may take in forfeiture against a tenant.
In a recent Court of Appeal case, that of Mohamed Majeed Faiz Shakeela Faiz Sassf Ltd -v- Burnley Borough Council (2021) WCA Civ 55, the question of waiver came to the fore.
In particular, the courts were asked to consider whether a landlord had waived their right to forfeit a lease in circumstances whereby rent had been accepted from the tenant after the breach of lease had happened but before the landlord became aware of the breach.
Essentially, is accepting payments that fell due after a breach but before knowledge of that breach classed as a waiver?
It should be noted that in this case, the breach was not a financial one – the tenant had sublet their property in breach of covenants in the lease. Arguably, however, the principles could be relevant in arrears cases.
The court, in this instance, concluded that where rent was demanded before the breach occurred, acceptance of that rent, after knowledge a breach at a later date would not amount to a waiver because the rent fell due before the breach.
However, if the rent fell due after the breach and after the landlord become aware of that breach, this action would waive the right to forfeit.
The Court further offered guidance in scenarios whereby the landlord became aware of a breach but did not know exactly when it took place. In this situation the landlord must have knowledge that the sum demanded or accepted fell due after the breach occurred.
In this case the court concluded that the right to forfeit was waived when the landlord demanded or accepted payments which were due after the date of a breach that was known to the landlord.
The key lesson to learn from this case is for parties to be aware of anything that may be deemed to waive their right to forfeit and note that accepting payments from a leaseholder may do just that.
If landlords are unsure of their position in relation to accepting payment or making demands, then it is essential they take advice before sending demands or accepting payments.
