Faiz & Ors v Burnley Borough Council (Rev 1)

A landlord waives a right to forfeit when, with knowledge of the tenant’s breach, it demands or accepts rent that accrued due after the breach. It is immaterial that the rent accrued before the landlord discovered the breach. Rent accrued due on or before the breach may be demanded or accepted without affirming the lease.

The party alleging waiver bears the burden of proving both the date of the breach and the landlord’s requisite knowledge. An invoice which merely reduces or supersedes an earlier demand, and which is inconsistent with the contractual machinery for a fresh demand, does not constitute a fresh demand for rent or waive forfeiture.

The Council granted the appellants a lease of a café. The lease prohibited subletting absolutely and contained a forfeiture clause. The appellants granted an uncontracted-out sublease to SASSF Ltd, thereby breaching the covenant.

After receiving a demand for insurance rent, the appellants disclosed the sublease. The Council served a notice under section 146 of the Law of Property Act 1925, accepted a reduced insurance payment, and then forfeited the lease by peaceable re-entry.

HHJ Halliwell held that the Council had not waived forfeiture: [2020] EWCH 407 (Ch). The appeal concerned whether acceptance of rent which accrued after the breach but before the landlord knew of it was a waiver, and whether a later reduced invoice was a fresh demand for rent.

1. Appeal dismissed unanimously. A landlord facing a breach that gives a right to forfeit must elect either to forfeit or to affirm the lease. An unequivocal act recognising the lease’s continuation, made with knowledge of the material facts, is a waiver and cannot be retracted.

2. Where the alleged waiver is a demand for or acceptance of rent, the critical date is the date on which the rent accrued due, not the date on which the landlord acquired knowledge of the breach. A demand for or acceptance of rent accrued due after a known breach affirms the lease and waives forfeiture for that breach. The landlord’s knowledge need only exist when it makes or accepts the demand or payment. Rent accrued due on or before the breach may be accepted without inconsistency with forfeiture.

3. The court approved the approach expressed by Rix LJ in Osibanjo v Seahive Investments Ltd, [2008] EWCA Civ 1282, and regarded the historical authorities, including Croft v Lumley, (1858) 6 HL Cas 672, as supporting that principle. The landlord must know the facts constituting the breach. In a subletting case, that includes knowledge that the rent demanded or accepted accrued due after the subletting.

4. The tenants bore the burden of establishing waiver. The trial judge’s finding did not establish that the sublease pre-dated the date on which the September insurance rent became due. The Council also did not then know that the breach had occurred. The first demand and the later acceptance of payment therefore did not waive forfeiture.

5. The November invoice was not a fresh contractual demand for insurance rent. It covered only part of the earlier period, stated that payment was due immediately rather than after the contractual seven-day period, and necessarily superseded the earlier invoice. It was an indication that the Council would accept a reduced part of the sum previously demanded. Its issue and payment did not affirm the lease or waive forfeiture. The judge’s decision was upheld.

• Court of Appeal (Civil Division): dismissed the tenants’ appeal and upheld the finding that forfeiture had not been waived: [2021] EWCA Civ 55.
• High Court, Business and Property Courts in Manchester: HHJ Halliwell held that the Council had not waived its right to forfeit: [2020] EWCH 407 (Ch).