Landlord's Rights Preserved Despite Accepting Payment From Tenant

One of the remedies available to a landlord when rent is not paid is to forfeit the lease and to take possession of the premises. However, if this course of action is intended, it should be remembered that acceptance of rent acts to waive the landlord’s right to forfeit the lease.

In a recent case, a landlord applied for a bankruptcy petition against one of its tenants when it made a statutory demand for rent due and this remained unpaid. The landlord also became aware of breaches of the lease covenants by the tenant. The bankruptcy hearing was adjourned.

The tenant paid £10,000 prior to the new date for the bankruptcy hearing. This sum exceeded the sum due under the statutory demand by more than £6,000, but new sums had become due. The landlord banked the cheque, but returned the excess over the sum that was subject to the bankruptcy hearing. It informed the tenant that the partial acceptance of the sum due could not be regarded as a waiver of the landlord’s right to forfeit the lease. Following the dismissal of the bankruptcy petition, the tenant sent the landlord another cheque for £18,750, which was returned.

The tenant argued that the acceptance of the first cheque occurred when the landlord had knowledge of the tenant’s breaches of the lease. This meant that the landlord had waived its right to forfeit the lease and that acceptance of the cheque constituted acceptance of rent, even though the balance had been returned.

The Court of Appeal rejected these arguments. It was impossible for the landlord to obtain settlement of the debt due under the statutory demand without cashing the first cheque. It had returned the balance of that cheque to the tenant. In the Court’s view, the landlord had commenced action before it was aware of the breaches of the lease.

In this case, the landlord’s actions justified its argument that it had not accepted the cheque as rent. The case illustrates the importance of taking advice early on in such cases. It would have been easy for the landlord to make the error of retaining the balance of the cheque and/or accepting the second cheque, in which case the right of forfeit would probably have been lost.