Waiving goodbye to breaches of the lease
Commercial landlords and tenants will, of course, rely on the terms of the lease they have entered into to determine, amongst other things, what the tenant can and cannot do during the term of the lease.
Whilst such reliance on the terms of the lease is perfectly sensible, there is the sometimes overlooked principle of waiver that can render ineffective the power of the landlord to forfeit the lease should the tenant fail to comply with its obligations, no matter what the lease says. In other words, if the tenant breaches a covenant in the lease to do, or not do, something the landlord might unwittingly act in a way that recognises in law the continuation of the lease and, consequently, its waiver of the right to forfeit for that breach.
Whether the waiver by the landlord is temporary or more permanent very much depends on the type of covenant that has been breached. Clearly, if the breach that is waived has a more permanent effect then the landlord may find that the use of its premises has altered in a way that was unexpected. Conversely, the tenant may be very pleased with its new position.
Firstly, in order for the landlord to waive the right to forfeit the lease for a particular breach it needs to have knowledge of it. The landlord cannot waive something it doesn’t know about. Secondly, if the landlord knows about the breach then it needs to have acted in a way that is recognised in law as an acknowledgment or communication to the tenant that the lease should continue and not be forfeited.
An example may help illustrate the types of breaches and how easy it is for the landlord to waive them. Let’s say the landlord discovers that the tenant has carried out alterations within the commercial premises or permitted a third party to occupy them and these actions amount to a breach of the lease. The landlord is unhappy with what he has discovered and conveys this to the tenant. Discussions continue regarding the breaches and during that time the landlord continues to receive rent from its tenant. Discussions then break down and the landlord decides it wants to forfeit the lease due to the tenant’s breaches. Arguably, the landlord will be unable to do so. The acceptance of rent from its tenant, and even discussions or negotiations relating to the breaches, can amount to a recognition that the lease is continuing and, as a result, a waiver by the landlord.
Whether not the right to forfeit has been waived can be particularly tricky to assess. However, landlords can limit the risk of waiving by recognising that once they know about a breach their action, or even inaction in some cases, however innocent, may result in a waiver and taking prompt advice may help preserve the right. Tenants also need to be alive to the possibility of waiver in order to protect their interests in the event the landlord decides to forfeit its lease.
Harris Charalambous is a Dispute Resolution Associate at Prince Evans Solicitors LLP dealing with real property, commercial property, commercial landlord and tenant, contract and professional negligence disputes.