Is a landlord?s forfeiture right waived by accepting part of a cheque?
It is generally accepted that a landlord has the right to forfeit a lease where the tenant is in breach of its lease obligations, but that this right can be lost where the landlord accepts rent from the tenant despite knowing that a breach has occurred. Sometimes, however, the facts of a matter are not so straightforward and problematic issues still emerge, as we saw at the end of last year in the case of Osibanjo v. Seahive Investments Limited.
The facts of the case are that Mr Osibanjo was the tenant of a commercial property in London; Seahive Investments Limited (?Seahive?) was the landlord. Osibanjo?s rent payments were in arrears for periods in 2004 and 2005, and Seahive made a statutory demand in relation to the debt. The demand was not satisfied and so Seahive presented a bankruptcy petition at the beginning of 2006. The hearing was adjourned several times.
In June 2006, Seahive became aware that Osibanjo had breached certain other lease obligations, including carrying out alterations to the property without Seahive?s consent.
The adjourned bankruptcy hearing was due to take place in October 2006 and, shortly beforehand, Osibanjo sent a cheque to Seahive?s solicitors in the sum of ?10,000. The outstanding bankruptcy sum was ?3,414 and a covering letter sent with the cheque explained that the cheque was in part to discharge the outstanding bankruptcy sum, with the remainder acting as part payment of rent arrears.
Seahive?s solicitors banked the cheque (so the bankruptcy petition could be dismissed) but returned the difference to Osibanjo, explaining that ?For the avoidance of doubt the clearance of your cheque should not be regarded as a waiver by our client of his right to forfeit the lease?.
Shortly afterwards, on 1 November 2006, the bankruptcy petition was dismissed formally by the court. Later that same month, Osibanjo sent a further cheque, but this time the cheque was not banked. Instead, it was returned and forfeiture proceedings ensued.
Osibanjo contested the forfeiture proceedings and argued that Seahive had waived its right to forfeit the lease because it had:
1. Banked the cheque for ?10,000 to pay the rent due.
2. Commenced a bankruptcy petition.
Both the County Court and the Court of Appeal rejected Osibanjo?s arguments since there was no way for the bankruptcy petition to be dismissed without banking the cheque, and it was also impossible for Seahive to separate the two elements of the cheque (the bankruptcy petition and the outstanding rent) without first banking the cheque. The Courts were happy that no part of the ?10,000 cheque had been accepted as rent and Seahive?s position had been made clear by its solicitors when they had banked the cheque. The argument relating to the bankruptcy proceedings was likewise rejected as proceedings had commenced before Seahive know of the breaches and, also, it would be illogical to rule that a landlord could not forfeit for bankruptcy because the process of making a tenant bankrupt would itself waive the right.
The end result was that Seahive can repossess the property (relief from forfeiture was not permitted). That has to be the right decision in this case. It seems clear in relation to the ?10,000 cheque that both landlord and tenant wanted the bankruptcy petition dismissed, and the only way to do this was to bank the cheque in full. As for the argument that the bankruptcy proceedings acted as a waiver, this must be nonsense otherwise the result is a full circle legal argument as mentioned above.
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