Faiz & Ors v Burnley Borough Council (Rev 1)

The Court of Appeal considered the law of waiver of forfeiture where a landlord demands or accepts rent after a tenant's breach of covenant and after the rent has fallen due but before the landlord had knowledge of the breach. The court held that waiver arises where the landlord demands or accepts rent which accrued due after the date of the breach and does so with knowledge of the breach. It does not matter for the principle whether the rent had fallen due before or after the landlord acquired knowledge; what matters is whether the rent accrued due after the breach itself and whether the landlord knew the breach had occurred when he demanded or accepted the rent.

Applying those principles, the Court held that the appellants had not discharged the burden of proving waiver. On the judge's findings the insurance rent may have become due before the sub-lease (and therefore the breach) took place, and the Council did not learn of the sub-lease until 18 October 2019. Further, a later invoice of 4 November 2019 did not constitute a fresh contractual demand under the lease but was an amended figure superseding the earlier demand and stated to be payable immediately; it therefore did not convert the payment into rent accruing due after the breach and known to the landlord. Accordingly the acceptance of payment on 11 November 2019 did not waive forfeiture.

Background and parties:

• The respondent, Burnley Borough Council, granted a contracted-out lease of a café within Towneley Hall. The lease prohibited sub-letting and contained forfeiture provisions; it required payment of an index-linked rent and an insurance rent payable within seven days of demand.
• The lease was held by Mr Faiz and his daughter and, unbeknown to the Council, they executed a sub-lease to SASSF (a breach of the absolute covenant against sub-letting).

Procedural posture and relief sought:

• The case came to the Court of Appeal on appeal from HHJ Halliwell (High Court/Chancery) where the judge had held that Burnley Borough Council had validly forfeited the lease and had not waived forfeiture. The appellants sought to overturn that conclusion.

Issues framed:

1. Whether acceptance of rent by the landlord after a breach, where the rent had accrued due and been demanded before the landlord had knowledge of the breach but the rent itself had accrued after the breach, amounted to a waiver of forfeiture.
2. Whether the Council's invoice of 4 November 2019 was a fresh demand under the lease such that the rent thereby became due after the landlord had knowledge of the breach.

Facts relevant to decision:

• The Council sent an initial demand for insurance rent on 26 September 2019, making the premium due on 2 October 2019; the Council did not learn of the sub-lease until 18 October 2019.
• The Council served a section 146 notice on 30 October 2019 and purported to forfeit by peaceable re-entry on 22 November 2019.
• The Council issued a revised invoice on 4 November 2019 for a reduced sum and stated that it was "due" on 4 November; that amount was paid on 11 November 2019.

Court's reasoning:

• The court surveyed the authorities and concluded that waiver arises where a landlord demands or accepts rent which accrued due after the date of the breach and does so with knowledge of that breach; the critical temporal comparison is between the date the rent accrued due and the date of the breach, not simply the date the landlord became aware of the breach.
• The court held that the appellants bore the burden of proving waiver and that, on the judge's findings, the insurance rent may have become due before the breach occurred; accordingly the appellants had not discharged the burden.
• On the 4 November invoice the court concluded it was not a fresh contractual demand under the lease because it covered a reduced period, stated the sum was payable on the invoice date (inconsistent with the lease mechanism of payment seven days after demand), and thus superseded the earlier demand; it was an offer to accept a lower sum rather than a new demand making rent accrue after the breach. Therefore acceptance of the payment did not amount to waiver.

Result: Appeal dismissed; the council had not waived its right to forfeit.

The Court of Appeal dismissed the appeal. It held that waiver of forfeiture requires demand or acceptance of rent which accrued due after the breach and was made or accepted with knowledge of the breach. On the judge's findings the insurance rent may have accrued before the sub-lease breach and the Council did not know of the breach when the first demand was made; the revised November invoice did not constitute a fresh contractual demand under the lease but an amended, immediately payable figure which superseded the earlier demand. The appellants therefore failed to prove waiver.

Appeal from the High Court (Chancery) before HHJ Halliwell, judgment reported at [2020] EWCH 407 (Ch); case ref PT-2019-MAN-000119.