Exercise of CRAR waived the right to forfeit

The High Court has held that a landlord waived the right to forfeit a lease for rent arrears when it attempted to use Commercial Rent Arrears Recovery (CRAR).

CRAR

CRAR is a process by which a landlord of commercial property can take control of a tenant’s goods and sell them to recover money owed in rent arrears. It was introduced by the Tribunal, Courts and Enforcement Act 2007, and it replaced the common law right of distress. To exercise CRAR, a landlord must serve notice of its intention to do so seven clear days before seizing the goods.

Forfeiture

Most leases contain a right by the landlord to terminate the lease by forfeiture if the tenant breaches its obligations. Once the right has arisen, if the landlord (with knowledge of the tenant’s breach) acts in such a way that it unequivocally treats the lease as continuing, the landlord will waive – and so lose - its right of forfeiture. A good example of when this might happen is when a landlord demands or accepts rent knowing there to be a forfeitable breach of the lease terms by the tenant.

Facts

In Saravananthan Thirunavukkrasu v Brar and Brar, the tenant was granted a lease for a term of 21 years. The rent was payable in four equal quarterly instalments.

The lease contained a forfeiture clause which stated:

“The landlord may re-enter the property…at any time after …any rent is unpaid 21 days after becoming payable whether it has been formally demanded or not”.

Part of the quarter’s rent which fell due on 25 December 2015 went unpaid and so a right to forfeit arose 21 days later on 15 January 2016.

At some point in January 2016, the landlord instructed enforcement agents to use CRAR. On 1 February 2016, those agents entered the property and took goods for the stated arrears of £8,270, which sum was paid to the landlord on 17 February 2016.

Meanwhile, on 12 February, the landlord entered the property to forfeit the lease by peaceable re-entry.

The tenant claimed that forfeiture to be unlawful because the exercise of CRAR acknowledged the continued existence of the lease after the right to forfeit had arisen. At first instance, the judge agreed. The landlord appealed.

Decision

The High Court said:

• The remedy of CRAR replicated, with modifications, the right to distrain. The common law concerning waiver and election had remained untouched by the 2007 Act and under common law, an act of distress would act as a waiver of the right to forfeit. The 2007 Act does set out circumstances in which CRAR might be exercised once a lease had come to an end, but none of them applied in this case meaning that CRAR could only be used when the lease was continuing. As such and by using it, the landlord had elected to treat the lease as continuing and so had lost its right to forfeit.
• The landlord was unable to save its case by depending on section 210 of the Common Law Procedure Act 1852. Essentially this provision states that if one half year’s rent is in arrears and the landlord is able to enter for non-payment, he can, instead, serve a ‘writ in ejectment’ for recovery of the premises instead of forfeiting. The landlord argued that because this process was different from a right to forfeit being exercised, distress could not waive the ability to use the process. The court said this was irrelevant because proceedings under this provision had not been commenced. Instead, the landlord had sought to forfeit the lease.

Comment

The decision in this case is reassuring for landlords and tenants in its confirmation that, while there may be differences in the practical exercise of distress and CRAR, their effect on the right to forfeit is the same.

Timing is critical. The lease allowed 21 days after the rent fell due before the right to forfeit arose. Had CRAR been exercised before the 21 days had elapsed, the landlord would not have waived the right to forfeit. This case underlines the importance of communication of timelines between landlords and agents instructed to exercise CRAR, as well as overall consideration of enforcement options.

Saravananthan Thirunavukkrasu v Baljit Singh Brar, Jinder Kaur Brar [2018] EWHC 2461 (Ch)