The banking of a tenant’s cheque will not always lead to a landlord losing its right to forfeit a lease.
In Osibanjo v Seahive Investments Limited the Court of Appeal considered the critical issue of when the banking of a tenant’s cheque by a landlord will lead to a landlord losing its right to terminate a lease because of a tenant’s breach of obligation.
Mr Osibanjo had a lease of a commercial property in London SE5 and Seahive Investments Limited was his landlord. Osibanjo was in arrears with his rent payments and Seahive made a statutory demand in respect of the arrears, but the demand was not satisfied. As a result, Seahive presented a bankruptcy petition against Osibanjo to be heard in February 2006. This was adjourned on a number of occasions.
In June, Seahive became aware that Osibanjo was in breach of a number of his lease obligations including the carrying out of extensive works to the property without Seahive’s permission. Seahive had no knowledge of Osibanjo’s breaches before June.
Shortly before the adjourned hearing of the bankruptcy petition in October 2006, Osibanjo sent a cheque for £10,000 to Seahive’s solicitors. A covering letter stated that the cheque was, in part, to discharge the outstanding bankruptcy sum (some £3,415) and the remainder was part payment of rent arrears.
Seahive’s solicitors banked the cheque so that the bankruptcy petition could be dismissed. They wrote to Osibanjo informing him that Seahive had retained £3,415 representing the bankruptcy debt, but the solicitors returned to Osibanjo the balance of £6,585. Seahive’s solicitors emphasised that the banking of Osibanjo’s cheque should not be regarded as waiving Seahive’s right to forfeit Osibanjo’s lease because of his breaches of the lease obligations.
If a tenant is in breach of its lease obligations, the landlord is likely to have the right to “forfeit” (or terminate) the lease. However, the landlord’s right to forfeit may be “waived” (or lost) if the landlord acts in such a way as to recognise the continued existence of the lease. One of the most common examples is where the landlord accepts rent from the tenant knowing that there has been a breach of the lease by the tenant.
In this case, Seahive brought proceedings to forfeit the lease and regain possession of the property because of Osibanjo’s breaches. Osibanjo argued that Seahive had waived its right to forfeit the lease by banking the cheque for £10,000 to pay the rent due.
The County Court rejected Osibanjo’s argument, stating that there had been no waiver of the right to forfeit, since the Court found that no part of the payment had been accepted as rent.
The Court of Appeal agreed with the lower court’s decision. It was impossible for Seahive, without first banking the cheque, to separate out the payment to avoid Osibanjo’s bankruptcy order from the payment to discharge the rent arrears. The cheque had to be banked to secure the dismissal of the bankruptcy petition against Osibanjo. Seahive’s solicitors made it clear that they were banking the cheque only to allow the petition to be dismissed and they were not accepting the balance of the payment as rent.
The Court also rejected an argument that the bankruptcy proceedings were themselves a waiver of Seahive’s right to forfeit. Otherwise, a landlord would not be able to forfeit for bankruptcy because the very process of making a tenant bankrupt would itself waive the forfeiture right.
The Court refused relief from forfeiture and Seahive is entitled to repossess the property.