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Can you agree to ‘waive’ forfeiture of a lease?

What does ‘pay’ mean, in a break clause?

Rectifying a contract - an unhappy experience

These points have all been considered in court proceedings.

 

Can you agree to ‘waive’ forfeiture of a lease?

Moral of the story: You cannot agree informally with a tenant to ‘waive’ your forfeiture of a lease.

The Story: The (commercial) tenant was in arrears.  The landlord effected peaceable re-entry for non-payment of rent.  The tenant paid off the arrears.  At the landlord’s insistence, the tenant then applied to court for relief from forfeiture.  Relief was granted.  The dispute between landlord and tenant related to costs (the tenant contended that the court application was unnecessary: the lease was continuing, the purported forfeiture having been waived by agreement).  The tenant’s contention failed.

Implications:  You do need a court order for relief from forfeiture, to ‘reinstate’ the lease.  If you don’t, your informal agreement with the tenant will create a new tenancy, not continue the old one.  Creating a new tenancy in this way can have serious implications for you.  It may release an existing guarantor or allow 1954 Act protection to the tenant where the original tenancy was contracted out of the Act.  A similar situation can arise on the service of a break notice, where the landlord and tenant want to agree to it being ‘withdrawn’, but in so doing unintentionally create a new tenancy. 

Case:  Zestcrest Ltd v County Hall Green Ventures Ltd [2011]

 

What does ‘pay’ mean, in a break clause?

Moral of the story: Payment by cheque, even if not cleared by the break date, may be enough to comply with conditions attaching to a break right.

Strict compliance with a break right may require the tenant to pay default interest due on sums paid late, even where the landlord has not consistently asserted its right to payment.

The Story: Property on a Stroud business park was let to the tenant.  Its break right was conditional on the tenant paying:

(1) a sum equal to six months’ rent at the break date;

(2) all sums due under the lease by the break date.

On (1):

• The lease did not specify what “pay” meant.  The tenant paid the penalty rent by cheque the day before the break date.

• The tenant had routinely paid rent and other sums by cheque. That payment method was accepted by the landlord at the time.  That was enough to prove its implied agreement to payment by cheque (if the cheque was met on later presentation).�

• Even the fact that the tenant switched to making BACS payments a couple of years before the break date was found not to abandon that implied agreement.

• That previous course of dealings prevented the landlord rejecting a cheque for the penalty rent due to break the lease.

On (2):

• Sometimes the landlord had invoiced the tenant for default interest when it made lease payments late, but not always.  The lease did not require the landlord to make demand for default interest.

• The judge here found that £130 default interest was enough to frustrate the tenant’s break right.

Implications:  Payment by cheque?  Make sure lease terms are clear that sums payable to break a lease are received by you in cleared funds.

Outstanding sums? Take great care, as always, in how you handle correspondence and discussions with a tenant: this is fertile ground in subsequent dispute.

Case:  Avocet Industrial Estates LLP -v- Merol Ltd and Others [2011]

 

Rectifying a contract - an unhappy experience

Moral of the story: Make sure you have fully understood the terms of a contract before you commit to it.

The Story: Daventry District Council and Daventry & District Housing (then a registered social landlord (RSL)) negotiated an outsourcing contract, at cross purposes, with both parties believing the other was to cover a £2.4m pension scheme deficit.

The signed contract stated that the Council was to pay the deficit.  However, the Council’s court claim for rectification succeeded, and the RSL had to pay the deficit.  This was on the basis that the parties conducted themselves throughout the negotiation in a manner that, when assessed objectively, suggested that they agreed the deficit was to be paid by the RSL.  This was in spite of the fact that (a) subjectively the RSL had no such intention; and (b) a late amendment to the draft contract stated clearly that the deficit was to be paid by the Council.

Implications:  This decision shows how important it is to:

• be explicit about your expectations during contractual negotiations; and

• ensure that you provide clear instructions to your solicitor.

The law presently favours the objective intentions of the parties over their subjective intentions.  This means that if your intentions, assessed objectively, are inconsistent with your true (subjective) intentions, then you may still find yourself bound by terms you were never prepared to accept, and which were not articulated in your written contract.

This was a controversial decision, acknowledged by the judges involved (the court was split 2:1), who felt constrained by previous case authority.  Permission to appeal has however been declined.

Case:  Daventry District Council v Daventry & District Housing Ltd [2011]

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