Landlord problems: Beware of waiving the right to forfeit

The third instalment in our series of practical guidance for Landlords continues on with the theme of forfeiture, more specifically the issue of landlord's waiving the right to forfeiture.

Scenario: a commercial property is let out to a tenant under a commercial lease with the rent payable on the 1st day of each month. The lease contains a forfeiture clause permitting the landlord to forfeit the lease if the rent is 14 days or more overdue. The landlord wants to take back possession and forfeit the lease.

Waiving the right to forfeit If a forfeiture scenario arises, the landlord must take great care not to do anything which may 'waive' (i.e. give up) that right to forfeit. Many leases will not refer to waiver of forfeiture and therefore many landlords will not be aware of the implications of their actions in this regard.

Waiver of the right to forfeit can occur where the landlord:

• Has knowledge of the tenant's breach;
• Performs an unequivocal act which recognises the lease as continuing to exist; and
• Communicates that act to the tenant.

The basic principle is that once a forfeiture scenario has arisen and the landlord has decided to act on it, the landlord must not do anything which would re-affirm the continuation of the landlord and tenant relationship.

If waiver occurs, it will mean the landlord will not be able to forfeit in that instance and, instead, will have to wait for the next breach which may (or may not) give rise to a forfeiture scenario, depending on the facts. This could have severe commercial consequences and result in the landlord incurring significant further losses.

What actions may constitute a waiver?

Following a breach, the following are examples which may give rise to waiver of the right to forfeit:

• Accepting rent late;
• Chasing the tenant for overdue rent (verbally or in writing);
• Discussing other aspects of the lease and its obligations with the tenant;
• Sending rent demands or other notices pursuant to the lease.

In the above scenario, can the landlord contact the tenant on the 10th day to demand the rent arrears?

No. Contacting the tenant at any time following the breach (i.e. the rent falling due and not being paid) would constitute an unequivocal act which recognises the lease as continuing to exist.

If a landlord wishes to forfeit the property due to the tenant's breach, then the best advice is once the rent day has arrived (1st) and no payment has been made, they must have no communication with the tenant at all regarding that breach or otherwise.

The landlord should instead simply wait till the forfeiture date arrives (14th day) and then proceed to forfeit.

Can the landlord send a rent invoice to the tenant before the rent falls due?Yes, providing it's sent prior to the rent due date (i.e. prior to the 1st day of the month in our scenario).

What if the tenant transfers the rent arrears to the landlord late, but before the forfeiture date arrives?In that scenario, the landlord should return the payment immediately and inform its bank to reject any further attempts by the tenant to pay.

What about the rent arrears?Just because a landlord has forfeited the lease, it is still entitled to recover the rent arrears. However, the best time to claim the rent arrears would be after forfeiture has occurred and the landlord has possession of the property back.

If the landlord has waived the right to forfeit, does this mean the landlord will never be able to forfeit the lease?No. The ability to forfeit depends on the specific wording of the lease, but generally, the landlord is entitled to forfeit every time a forfeiture event under the lease arises.

It is possible that even if a landlord has waived its right to forfeit for one instance, another separate forfeiture instance may arise in the future which may be actioned.

Forfeiture is not a straightforward area of law and a landlord must always take legal advice well in advance of exercising its right to forfeit, to ensure that right is preserved and carried out legally.