DAC Beachcroft Real Estate Advisory: Tip of the week
Published 28 April 2014
Most commercial leases will contain provisions allowing the landlord to forfeit the lease where the tenant is in breach of its covenants. However the landlord will only be able to exercise this right if it has not waived its right to do so.
A landlord will waive its right to forfeit if it treats the lease as continuing to exist notwithstanding the tenant's breach. There are many ways in which this can happen, but the most common and conclusive way is the demand and acceptance of rent. There are two types of breach: (i) a 'once and for all' breach (for example an unlawful informal assignment); and (ii) a continuing breach (for example failure to repair or maintain).
Where the breach is continuing, a new breach arises each day and therefore renews the landlord's right to forfeit, notwithstanding any previous waiver. However where the breach is once and for all, once the landlord has waived its right to forfeit, it will then be prevented from forfeiting for that particular breach at any time for the remaining term, despite the breach not having been rectified.
Therefore, as soon as you become aware that a tenant has breached its lease, if you wish to retain the right to forfeit, do not demand or accept any money from the tenant or do anything else that may indicate that the lease is continuing.