A saving grace for landlords

As a county court decision affirms a long-standing assumption on forfeiture, waiver and negotiations during a grace period, Emma Chadwick and Jennifer Welby explain the significance. In Capital Direct & Co Ltd v Fuller (unreported, County Court at Central London, 28 May 2020), the appellant, Capital Direct, was a tenant of commercial premises in London, out of which it operated a restaurant. On 24 June 2018, it failed to pay the quarterly rent. The lease contained a grace period of 21 days, after which the respondent had a right of re-entry under the lease, allowing it to peaceably re-enter the premises and forfeit the lease. On 2 July 2018 a meeting took place between the appellant and respondents’ representatives at which future management of matters of the lease was discussed. On 4 July 2019, the respondent’s surveyor wrote to the appellant by e-mail discussing several aspects of the lease, such as insurance, previous rent arrears, and rent deposit arrangements. On 19 July 2018, the respondent exercised its contractual right of re-entry, and forfeited the lease. In response, the appellant issued a claim for unlawful re-entry on the basis that the respondent’s correspondence amounted to waiver and, in the alternative, for relief against forfeiture. The grace period assumption On 13 August 2019 at first instance before DDJ Tomlinson, the appellant failed on the issue of waiver, but was granted relief from forfeiture on the condition that the respondent’s costs and rent arrears were paid. They were not, and the lease remained forfeit. The appellant sought permission to appeal on two grounds: first that DDJ Tomlinson wrongly held that the respondent could not waive the right of re-entry based on non-payment of rent during the 21-day grace period; secondly that, if successful, the e-mail dated 4 July 2018 did amount to wavier. At the hearing, the appellant sought to put forward a case that, although the protection afforded to the landlord and tenant during a grace period has been assumed by practitioners and landlords and tenants for many years, as a matter of law it is incorrect. HHJ Luba QC acknowledged that there was no precedent for this, but held that the principle on which this assumption lies can be extracted from a long line of judicial decisions. He granted permission to appeal the first ground, but the appeal itself was refused. Permission to appeal the second ground was refused. The judge’s reasoning The starting point is to consider the nature of waiver. In Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1970] EGD 761, Lord Diplock held that waiver “arises in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights, and acts in a manner which is consistent only with having chosen to rely on one of them, the law holds him to his choice even though he was unaware that this would be the legal ensconce of what he did. He is sometimes said to have ‘waived’ the alternative right”. Matthews v Smallwood [1910] 1 Ch 777, to which Lord Diplock referred, established that such a choice between two courses of action arises where a landlord is faced with a right of re-entry. The question then remains whether it is possible to elect to choose one or other inconsistent rights during a contractual grace period contained in a right of re-entry. The appellant sought to rely on the recent residential leasehold decision in Stemp and another v Ladbroke Gardens Management Ltd [2018] UKUT 375 (LC); [2018] PLSCS 215, where it was held that it was possible to waive the right to forfeit before certain statutory procedural requirements had been satisfied, which were required to give rise to the right to forfeit. By analogy, the appellant sought to claim in this case that the grace period in the lease establishes a procedural requirement for the landlord before it could exercise its right of re-entry, and that Stemp is authority that the right can be waived prior to the right to forfeit arising. HHJ Luba QC did not accept this analogy, referring to obiter comments by HHJ Huskinson in Stemp, who acknowledged that while outstanding statutory requirements necessary to effect the right to forfeit did not prevent waiver, the right of re-entry did not arise until the contractual grace period which was provided for in the leases in Stemp had expired. Therefore, until the grace period has expired, the landlord is not faced with two inconsistent choices which could amount to an election to waive one right in favour of the other. HHJ Luba QC held that assumptions and principles applied by the courts in the cases of Kammins, Matthews and Stemp were clear enough that this principle is established as a matter of law. Bear this in mind come quarter day Commenting on ground two of the appeal, HHJ Luba held that comments in the 4 July 2018 e-mail which asserted a requirement for payment of the arrears and, failing that, a threat to take further action in compliance with the lease, did amount to an unequivocal representation and did not demonstrate that the respondent had abandoned its right to rely on the proviso for re-entry in the lease. It is important for landlords, agents and tenants to note, ahead of September quarter day and the possible end to the ban on forfeiture for non-payment of rent, that this case confirms in law what had been assumed by practitioners, landlords and tenants for many years: entering into negotiations during the grace period does not waive the right to forfeiture. Emma Chadwick is a partner and Jennifer Welby is an associate at Winckworth Sherwood Photo by Pixabay on Pexels