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Thomas v Ken Thomas Ltd (2006)

Summary

The acceptance by a landlord of monies apportioned and paid by a tenant in respect of outstanding rent debts meant that the landlord waived the right to forfeiture of a lease.

Facts

The appellant lessee (T) appealed against a decision that it had forfeited its lease on commercial premises. The respondent landlord (L) had let commercial premises to T on terms that included the payment of rent on a monthly basis on the first day of the month. Pursuant to the lease L was entitled to terminate the lease if T fell into arrears with its rent or became insolvent. Thereafter T got into financial difficulties and fell into arrears with its rent. A third party was appointed by L to advise it on its deteriorating financial position. It was proposed that T would enter into a company voluntary arrangement (CVA) pursuant to the Insolvency Act 1986 Part I with its creditors. L was informed by the third party of the proposed CVA and that it was intended that rent arrears owed for November should go into the CVA as an unsecured amount and that VAT that had not been paid in respect of a number of months' rent should also go into the CVA as an unsecured amount. L was further informed that it was intended that December's rent would be paid in two equal payments. L responded that it would treat the equal payments as November's rent. The payments were made and the third party contacted L and proposed to pay January's rent in instalments. L responded that it would treat those payments as satisfaction for December's rent. L brought a claim seeking forfeiture of the lease on the grounds that there had been non-payment of rent and the non-payment of VAT on the rent. T contended that L had, by its acceptance of the rent falling due under the lease after the dates when the right to forfeit in respect of the arrears of rent and VAT had arisen, waived its right to forfeit the lease. T further argued that L was not entitled to a judgment for the arrears of rent or VAT because both debts had been compromised by the CVA. The judge had held that L had not waived the right to forfeiture, as L had refused to accept T's apportionment of the debt before payment was made, that L was entitled to forfeiture notwithstanding the CVA and that relief from forfeiture should be granted upon condition that T pay the arrears of rent and VAT.

Held

(1) Once the failure to pay rent in November 2004 had occurred, giving L the right to forfeit the lease, any subsequent acceptance of rent or demand for rent were ways in which L could waive the right to forfeit. It was not necessary for L to have the intention of waiving that right. So long as, objectively, L's act recognised the continued existence of the tenancy, a waiver resulted irrespective of intention. T had a right to apportion payments in respect of its debts to a particular debt. If L was not prepared to accept the payments as apportioned by T he could have refused to accept them or returned them within a reasonable time. Once L had accepted the payments he was, subject to any question of contrary agrement or estoppel, fixed with T's stated appropriation of the debt and its consequences for waiver of forfeiture, Expert Clothing Service & Sales Ltd v Hillgate House Ltd (1987) 1 EGLR 65 HL considered, Woodfall on Landlord and Tenant, looseleaf, vol 1, para 17.095 and Chitty on Contracts, 29th ed (2004), vol 1, paras 21-059 to 21-061 referred to. In the circumstances the waiver argument should have succeeded and L's right to forfeiture was lost. (2) (Obiter) It would not have been open to L to seek to forfeit the lease for non-payment of rent which had been subsumed into the CVA. The November rent was so subsumed. The notion that L could forfeit the lease for a debt under the lease which had been replaced by a different debt under the CVA was not consistent with the rescue culture in the 1986 Act. By the wording of s.5(2) of the 1986 Act and the wording of the CVA, L was bound to accept payments in accordance with the CVA in substitution for the November rent. His right to recover the rent had been replaced with his rights under the CVA and so his right to forfeit for the rent, as much as his right to sue for the rent, had gone because there was no rent owing. L's status as a creditor with a right to forfeit did not mean that his position was any better than any other unsecured creditor. (3) (Obiter) Had the judge been right in forfeiting the lease, the terms on which relief was granted were wrong. It would have been appropriate to require the one month's rent to be paid but the County Courts Act 1984 s.138 provided that relief from forfeiture should generally be granted provided arrears of rent and costs were paid. That referred to the rent and arrears in respect of which L could rely to effect a forfeiture. That would not include the VAT in respect of which the right to forfeit had been waived, Gill v Lewis (1956) 2 QB 1 CA and Maryland Estates Ltd v Joseph (1999) 1 WLR 83 CA (Civ Div) considered.

Appeal allowed

Court of Appeal
Mummery, Jacob and Neuberger LLJ
Judgment date
9 October 2006
References

​[2007] 01 EG 94, [2006] EWCA Civ 1504

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