Q&A: Operating the forfeiture process post-CRAR

Rachel Morrish and Toby Watkin answer a question on forfeiture

Question

I am the landlord of a commercial unit let on a 15-year lease with rent payable in advance on the usual quarter days. The lease contains a right for the landlord to forfeit for non-payment of rent which is unpaid for more than 21 days. The tenant did not pay the rent due on the March quarter day.

On 25 April I instructed bailiffs to operate the commercial rent arrears recovery (CRAR) procedure. However, I did not serve an enforcement notice, and the tenant refused to let them in. Can I now forfeit the lease?

Answer

You are unable now to forfeit the lease for non-payment of the March quarter’s rent because you waived your right to do so by instituting the CRAR procedure. This will be the case even though the procedure was defective and not properly followed.

Explanation

When a tenant fails to pay its rent, and a right to forfeit the lease arises under the terms of the forfeiture, or re-entry clause within the lease, the landlord has a practical choice to make. She can elect to treat the lease as at an end by forfeiting the lease, or she can elect to treat the lease as continuing and continue to enforce its covenants for the future, such as taking action to recover rent or service charge arrears. However, when she elects to treat the lease as continuing (for example, by choosing to enforce the covenants in the lease) she is said to have waived the right to forfeit the lease in respect of that breach.

When a right to forfeit the lease has arisen, and the landlord is provided with this choice, the law does not permit the landlord to change her mind, or to act inconsistently by first treating the lease as forfeit and later treating it as continuing in existence (or vice versa). She must make her election and stick to it. In the words of one authority, law does not permit the landlord to “approbate and reprobate”. The practical upshot is that, if the landlord behaves in any way towards the tenant which is only consistent with the lease continuing to exist, the law treats the landlord as having made her election and having waived the right to forfeit the lease for any breach of which she was then aware. She has treated the lease as continuing to exist and cannot afterwards treat it as forfeited.

The CRAR procedure abolished and replaced the landlord’s centuries old common law remedy of distress for rent, in common parlance, “sending in the bailiffs”. It was well established that if a landlord exercised her remedy of distress in respect of unpaid rent she thereby waived any right to forfeit the lease (except in one special case). That was because the remedy of distress was only available during the term of the lease. If the landlord exercised the remedy of distress, then the landlord was treating the term of the lease as continuing, and she would be acting inconsistently if she later treated the lease as being forfeit. By distraining she was therefore making her election, and waiving any right to forfeit the lease.

The CRAR procedure was introduced by Part 3 of the Tribunals, Courts and Enforcement Act 2007 (the 2007 Act) and abolished and partially replaced the remedy of distress.

Although there are major differences between the landlord’s remedies under CRAR and the old remedy of distress, in Thirunavukkrasu v Brar [2018] EWHC 2461 (Ch); [2018] EGLR 43 the High Court held that the exercise of the landlord’s remedies under the CRAR procedure in respect of unpaid rent also waives the right to forfeit the lease for the failure to pay that rent.

Even though the landlord had not served an enforcement notice (pursuant to paragraph 7 of Schedule 12 of the 2007 Act) the defect in the procedure did not alter the landlord’s election not to forfeit the lease: the landlord had instructed enforcement agents and the tenant was aware that CRAR had been commenced.

This is because the exercise of the CRAR procedure is equally inconsistent with the landlord having forfeited the lease:

(a) generally the right to implement the CRAR procedure ends when the lease ends (see section 79(1) of the 2007 Act). So the implementation of CRAR means that the lease must be continuing;

(b) although the landlord does have the right to implement CRAR after the end of the lease in relation to rent which fell due before the end of the lease, that right does not apply if the lease ended by reason of forfeiture (see section 79(3) and (4) of the 2007 Act).

By seeking to implement the CRAR procedure, even in a way that is defective, a landlord acts in a way which is only consistent with not having forfeited the lease, and the law will not permit her to adopt a different position later by treating the lease as forfeit.

Thirunavukkrasu is the first case, since the 2007 Act was brought into force, on whether CRAR operates to waive the landlord’s right to forfeit in the same way as the law of distress.

The case was appealed from the County Court to the High Court and the landlord has been given permission to appeal the decision on this point to the Court of Appeal. The outcome of the appeal is expected to be known at the end of the year.

However, the decisions of both the County Court and the High Court appear to be consistent with the clear wording of section 79 of the 2007 Act and the underlying principles of forfeiture, so it will be surprising if the Court of Appeal reaches any different conclusion.

So, as the law currently stands you are unable now to forfeit the lease for non-payment of the March quarter’s rent: by instituting the CRAR procedure you waived your right to forfeit. This is the case even though the CRAR procedure was defective. We will need to wait until later in the year to see if this position changes.

Rachel Morrish is an associate in the property litigation group at Charles Russell Speechlys LLP and Toby Watkin is a barrister at Landmark Chambers