Member Article

Arrears of rent: advice for Landlords

With Watson Burton LLP Law Firm

Landlords need to exercise caution in circumstances in which a tenant is in arrears of rent. There is a well-established legal principle that if a tenant fails to pay rent, and a landlord subsequently unequivocally affirms that the lease still continues (for example, by accepting rent due for a later month) the landlord loses, or waives, the right to forfeit the lease.

The case of Thomas v Ken Thomas Ltd has recently thrown the consequences of this established principle into sharp relief. Mr Thomas let a warehouse in Cambridgeshire to Ken Thomas Ltd for a 10 year term at £400,000 per year. Under the terms of the lease the landlord retained the right to re-enter, or forfeit the lease for a variety of defaults on the part of the tenant, including the non-payment of rent and the insolvency of the tenant.

The tenant duly failed to pay rent which fell due on November 1 2004. In the same month the Landlord was informed that the tenant intended to enter into a company voluntary arrangement (CVA) and proposed to defer its December rental payments for a couple of weeks. The Landlord informed the tenant that he rejected its payment proposals for rent under the CVA and stated it would accept the December payments on the proviso that they were in respect of the November arrears. In due course the Landlord duly accepted the December payment.

In February 2005 the Landlord brought proceeding against the Tenant claiming to forfeit the Tenant’s lease. The Tenant argued that, by accepting the December payments, the Landlord had waived its right to forfeit the lease in accordance with the long established legal rule described above. The court found for the Tenant, confirming that by accepting the December payment the Landlord had in effect confirmed that the lease still existed and had therefore waived his right to forfeit.

A Landlord can include a clause in a lease stating that acceptance of rent will not amount to a waiver of his right to forfeit. However there is conflicting legal opinion about the effectiveness of these non-waiver clauses, and a Landlord would be best advised not to accept the rent in such circumstances as described above.

Given the complexity of this area of law it is essential to take specialist advice. Mistakes can be costly.

If you have any queries in relation to this article or any other Commercial Property matter, please contact Paul Wigham at Watson Burton LLP (email paul.wigham@watsonburton.com or telephone 0191 244 4444).

This was posted in Bdaily's Members' News section by Ruth Mitchell .