Canterbury Law Review
Although there are judicial warnings that the law relating to waiver of forfeiture is a minefield where one is well advised to tramp with diffidence and wariness, this article nevertheless suggests reform of this area of law as it relates to the landlord/tenant relationship. The common law has traditionally not looked on a landlord's right to forfeit a lease with sympathy. The common law deems the acceptance of rent by a landlord with knowledge a tenant is in breach of a covenant as a special and classic case of waiver. This requires a landlord to take great care when accepting rent with knowledge of a breach of the lease by the tenant lest it will by that action waive its entitlement to forfeit the lease. The readiness to supervise the landlord's forfeiture power carefully was no doubt an important protection for a tenant when there were few limitations on the landlord's ability to terminate a lease and for a tenant to seek relief from forfeiture. In the modern context this approach may result in the landlord being placed in a position where it must refuse the partial remedying of default by a tenant, or refuse negotiation with the intention of resolving a default, for fear of the application of the common law doctrine of waiver. A recent New Zealand Court of Appeal case, McDrury v Luporini, suggests a more balanced view that will be analysed in this article. This approach better balances the entitlement of a tenant to fair treatment in the case of default while protecting the landlord's entitlement to secure its interests and to recover what it can when the tenant defaults.
The traditional view of waiver of forfeiture favours a strict application of the rule in relation to the relationship of landlord and tenant. The common law leans towards a finding of waiver by the landlord on the basis that forfeiture is regarded as strictus juris. The strictness of the common law is emphasised by the rule in Dumpor's Case which suggests that a waiver by a landlord of one breach amounted to a waiver of all breaches. This common law rule has been abrogated by legislation in most jurisdictions. When a tenant breaches a covenant in a lease the lease is not automatically forfeited. Rather, the lease becomes voidable at the option of the landlord. When faced with default by a tenant, a landlord may elect to keep the lease on foot and thereby 'waive' the entitlement to forfeit. It should be understood that what is being waived is not the default by the tenant but the landlord's entitlement to forfeit. It is the ease with which a landlord may be deemed to have waived the entitlement to forfeit that is the focus of this article.
Waiver of forfeiture by the landlord may be express - whether in writing or orally. Probably more problematic is waiver effected by implication. Most troublesome for a landlord is when waiver occurs in relation to a non-recurrent breach. If a breach of covenant, such as a lack of repair, is deemed to be recurrent then waiver of forfeiture at one point will not stop a subsequent forfeiture if that breach continues. 'If the breach is of a continuing nature, there is a continually recurring cause of forfeiture and the waiver will operate only in relation to past breaches, that is to say, breaches committed in the period prior to the landlord's act which constitutes the waiver.' Of course there is a risk that a landlord may by its actions or words become estopped from exercising its forfeiture rights even in the case of a recurring breach. In the case of a breach that is non-recurrent, such as a breach of covenant to build within a specified period, then the forfeiture for that breach may be waived forever without limiting the ability to seek to recover outstanding rent. Waiver has been defined as 'where a landlord, knowing the facts that give rise to the right to re-enter, does some act unequivocally recognizing the continued existence of the lease.' The extent of knowledge of the breach by the landlord necessary to constitute the waiver has been described as knowledge of the essential facts constituting the breach. The classic case of waiver occurs when a landlord, who has knowledge of a breach of a lease by a tenant, accepts or demands rent that falls due after the date of the breach. Traditionally, this act will be deemed to impliedly waive the landlord's entitlement to forfeit a lease. The strictness of the rule means it matters not that the rent is received without prejudice to the landlord's rights. The intention behind the receipt of payment is irrelevant and may arise based on payment to the landlord's agent even if the landlord has no knowledge of the breach and even if the landlord has instructed the agent not to accept rent. This strict approach is so ingrained that Butt states that 'whatever the particular circumstances of the case, the landlord probably cannot be heard to deny that waiver results.' He also notes:
This is in clear contrast to situations where waiver is alleged to have arisen from conduct other than demand for or acceptance of rent; there, all the circumstances of the case must be examined to see if the landlord's conduct is consistent only with an attitude that the lease remains on foot.
Delay in acting has not been held to constitute a waiver and neither has inaction by a landlord.
These principles have an ancient history. In the authority of Croft v Lumley Baron Channell stated:
It is established by authorities, ancient and modern, that receipt of rent accrued after a breach of covenant known to the lessor at the time of such receipt of rent is a waiver of such forfeiture; for this reason, that the landlord affirms the continuance of the lease, and thereby determines the option of taking advantage of the forfeiture for [the] condition broken.
In Matthews v Smallwood, Parker J held that a landlord '[i]f, knowing of the breach, he does distrain, or does receive the rent, then by law he waives the breach, and nothing which he can say by way of protest against the law will avail him anything.'
A lease may expressly provide that a landlord will be deemed not to have waived a right to forfeiture if it receives rent with knowledge of a breach by a tenant. Although there appears to be some tendency to read these provisions against a landlord, a non waiver clause may be enforced to protect a landlord in circumstances where otherwise the common law may imply a waiver of the entitlement to forfeit a lease. The common law appears to be harsh from the perspective of the landlord. As the common law derives from a period when tenants lacked adequate statutory protection, it is worthwhile to consider if these principles should be reconsidered in the modern era. If the common law is based on a foundation that is now longer firm, it is suggested that the law should be reconsidered. The impetus for this reconsideration is afforded by the decision of the Court of Appeal of New Zealand in McDrury v Luporini where a different approach was preferred. It is suggested this approach is more in accord with common sense and modern policy objectives of supporting dispute resolution without resort to litigious procedures.
In McDrury v Luporini the McDrury brothers leased a farm from the Luporinis for 3 years. The lease (clause 2 (b)) contained a covenant requiring the tenants to apply 57 tonnes of fertilizer to the property by the end of the first year of the lease which was 31 March 1996. Although approximately 20 tonnes of fertilizer was applied, the tenants were in breach of that requirement by 1 April 1996. The Court deemed this to be a non-recurring and not a continuing breach. This appears to be in accordance with authority. The landlords continued to invoice the tenants until they re-entered in October 1996. Those invoices were paid and accepted. In July the tenants were served with a notice of default pursuant to s118 of the Property Law Act 1952. Section 118 is the legislative requirement in both New Zealand, and in equivalent Australian provisions, to provide notice of a default before exercising a power of forfeiture. The tenants' contention was that by accepting rent after knowledge of the breach, the landlords should be deemed to have waived their entitlement to forfeit the lease. At the original trial the landlords argued successfully that they did not have a sufficiently clear knowledge of the breach to suggest their acceptance of the rent was a waiver of it.
Tipping J (who delivered the judgement of the Court) dealt firstly with the issue of knowledge of the breach by the landlords. The Court accepted a number of propositions. The Court considered that 'suspicion does not constitute knowledge.' Thus if a landlord suspects a tenant is in default but is not sufficiently confident that a judge would disbelieve a tenant's denial of the breach, that would not be sufficient to demonstrate knowledge of the breach for these purposes. The Court considered that 'to know something it is necessary at least to believe it be so.' The Court considered applying a test of 'full knowledge' or 'fully aware' was not very useful except to suggest that actual knowledge and not some lesser state of mind is necessary. The Court settled on the test, '[p]ut bluntly people either know something or they do not. The onus in waiver cases is on the party in breach to establish on the balance of probabilities that the other party knew the facts constituting the breach.' The Court concluded that, despite the denials from the tenants, the landlords were fully aware and had full knowledge that the fertilizer covenant was not satisfied. This finding overturned the trial judge on this point. This conclusion then required a consideration of whether the landlords, armed with the requisite knowledge, had in fact waived their entitlement to forfeiture.
If the traditional principles of waiver were applied to the facts that arose in McDrury v Luporini, it is likely that this would have resulted in a finding that the landlords had waived their entitlement to forfeit the lease. The landlords had accepted rent for a period that fell after the date of the nonrecurring breach of the lease at a time when they were deemed to have had sufficient knowledge of that breach. Instead the Court in this case concluded that the landlords had not waived their entitlement to forfeiture. The reasons for that conclusion indicate a more modern and, it is suggested, a more appropriate approach to the issue of waiver. This approach provides what might be considered a better balance between the interests of the landlord and tenant. The reformist nature of this approach is exhibited by the fact that this decision did not arise from arguments presented to the original trial but resulted from a suggestion from the Bench in the appeal hearing that prompted supplementary written submissions. In this way it is clear the Court appreciated that the principles expressed in the case were forging a new and innovative approach in this area of law. The essence of the submissions that were ultimately accepted by the Court was that a landlord had no enforceable right to forfeit a lease until after the prescribed notice of default period had expired. Until that period had expired it was said that there was no entitlement to forfeit the lease and no ability to waive that entitlement. This viewpoint is derived from the perspective that waiver is in effect an election by a party entitled to two inconsistent rights to unequivocally choose one right. In Matamata Metal Supplies Ltd v Waipa District Council, Tipping J expressed this concept as:
It is important to note that waiver, in the present sense of election, depends upon the person said to have made an election being entitled at the time of such election to alternative and inconsistent rights. There cannot be an election unless the person concerned is faced with a choice, and clearly demonstrates which road is being chosen.
It was argued that the election discussed here is only possible when the inconsistent rights, that is, to keep the lease on foot or to forfeit the lease are fully accrued which would require the statutory notice period to have expired. It was said that a mere intention not to exercise a right is not effective to create a waiver of that right. On the facts it was said the right to forfeit had to await the completion of the notice period and for the default in the fertilization covenant to be not remedied. The Court held that during the running of a default notice, the obligations of the landlord and tenant continue, as does the lease, and the landlord may accept rent without risking waiving that entitlement to forfeit. The Court concluded that after a notice of default is served, the entitlement to forfeit a lease is deferred in a procedural sense and in a substantive sense. The entitlement to forfeit will be defeated if the tenant complies with the notice. In that sense the entitlement to forfeiture is truly conditional once a notice to forfeit has been lodged. It would appear strange if the law should state that a landlord has waived a right to forfeit for a non-recurrent breach when, based on the relevant notice provisions, that right has not yet arisen. This could occur though the notice suggests the landlord is placing itself in a position to make that remedy available conditional on the default not being remedied.
The Court noted that in a number of authorities that follow the traditional line of thinking that 'there has been at least a degree of assumption in some writings on the law of forfeiture that demand for or acceptance of rent between breach and issue of notice may amount to waiver.' These conclusions are reached without a detailed discussion of the historical and legal context in which the ancient doctrine of waiver may have been situated. This context may have suggested the legal balance between landlord and tenant required a strict approach to waiver of forfeiture rights. This might not be the case in the modern context where other considerations are at play. The Court acknowledged the special place that waiver holds in law relevant to landlords and tenants but stated 'this does not remove the need to address, on a principled basis, whether there is a sufficient right to forfeit ahead of the expiry, unfulfilled, of a required statutory notice.' The Court then finalized its considerations in this case by noting the point that what may be waived by the landlord is not the breach by the tenant but the entitlement to forfeit the lease. This focuses attention on the fact that
a landlord, after a breach and after lodging the required notice of default, is obliged eventually to decide between inconsistent remedies - either to keep the lease on foot or to terminate the lease. The Court considered that '[t]here is compelling force in the view that, until the lessor has an unconditional right to forfeit, no choice is possible between that right and the alternative right of keeping the lease alive.' This situation will not arise until the end of the prescribed notice period has expired unfulfilled. Of course if the notice is complied with within the period of the notice, the landlord would not enjoy that right. This indicates the conditional and defeasible nature of the forfeiture right vested in the landlord. In relation to the concern expressed that the landlord may unreasonably delay in issuing the required statutory notice, the principles of estoppel can be resorted to. If the landlord has delayed unduly in lodging a default notice, and has accepted rent in the meantime, it may be inappropriate to permit the landlord to proceed with forfeiture on the basis of an estoppel and unconscionability. The Court was of the view that after default by a tenant, a landlord is entitled to a reasonable period to assess its options. Unless that period is unreasonable, this period should not be construed as raising an estoppel.
The Court concluded 'that acceptance of rent in the period prior to the issue of the statutory notice cannot amount to an election not to forfeit. This is because no unconditional right to forfeit has yet arisen.' The Court concluded that the landlords acceptance of rent while the statutory notice period was running cannot be regarded as an election not to exercise the contingent remedy of forfeiture. The Court opined forcefully:
The lessor should not be in the position of having to decline to accept rent during the currency of the notice because the rent may never be forthcoming if the lessee fails to comply and the lease is forfeited. The lessee gets the benefit of the continuation of the lease during the notice period and should be obliged to pay rent in the ordinary way for that benefit. It is hardly logical in such circumstances to hold that the lessor has lost the right to forfeit by accepting what the lessee is obliged to pay for the extra time which the statute allows for the lessee to remedy the breach. To argue that the receipt of rent during the running of the notice could amount to waiver would also, in our view, be contrary to the general scheme of the notice provisions.
There is no record of this decision being followed in New Zealand to date but it has been applied in the Supreme Court of Queensland. In BBF Toowoomba Pty Ltd v Nebrean Pty Ltd, Moynihan J was asked to consider whether a landlord had waived its entitlement to forfeit a lease. A tenant reduced its hours of trading in breach of a trading hours clause. The landlord served a notice of default under s 124 of the Property Law Act 1974 (Qld) on the 26 July and invoiced the tenant for the August rent on the same day. On the 1 August the tenant paid the August rental by credit to the landlord's bank account. Moynihan J commented that '[i]t is convenient to mention at this stage that I am not persuaded this constitutes waiver since the remedy of forfeiture was contingent on non-compliance with the notice given on 26 July.' Although it is not clear from the judgment if the issues dealt with in McDrury v Luporini were canvassed fully before Moynihan J, he clearly has accepted the force of the judgement as applicable in Queensland.
The common law that applies to waiver by a landlord is applied strictly. This approach derives primarily from older cases that were delivered at a time when there was limited protection for a tenant when facing forfeiture. In Goodright d Walter v Davids, Lord Mansfield said that forfeiture was not favoured in law. The doctrine of waiver may have been developed in early times as a means of mitigating the harshness of the forfeiture, bearing in mind that prior to 1881 there was only limited equitable jurisdiction to grant relief from forfeiture. It was only in 1881 under the Conveyancing and Law of Property Act 1881 (UK) that a statutory power to relieve against forfeiture was provided. In the modern context there seems to be less need to jealously guard the position of a defaulting tenant by a strict application of the doctrine of waiver. A tenant has the ability to seek relief from forfeiture for default in payment of rent or other kind of breach and will normally receive a favourable hearing in such proceedings. This influenced the arguments addressed and generally accepted in McDrury v Luporini as supporting a new balance in the interpretation of the landlord/ tenant relationship.
If the goal of the law is to achieve a fair balance between the rights of a tenant and landlord, it appears difficult to argue that a tenant who is in default for some non-continuing breach of covenant should be entitled to argue that because the landlord continues to receive rent the landlord has, by that receipt, waived its entitlement to forfeiture. This non-traditional position is not without precedent in analogous situations. In Oak Property Co Ltd v Chapman, the traditional common law position expressed in cases such as Matthews v Smallwood is endorsed but it is acknowledged that the position is different when dealing with a statutory tenancy. In that case the lease was subject to the Increase of Rent and Mortgage Interest (Restrictions) Act 1920 (UK). It was considered that the principles of the common law cannot apply, or cannot apply wholly, to a statutory tenancy as the landlord has no entitlement to avoid the tenancy as this would require a court order for possession. In that situation the obligation of the tenant to pay rent and the entitlement for a landlord to accept rent continues despite any decision to seek a court order for possession. This is accepted on the basis that it may fairly be said that the acceptance of rent by a landlord, after knowledge of a non-continuing breach of covenant by a tenant entitling the landlord to go to the court, is not so unequivocal an act of affirmance of the tenancy as is acceptance of rent in like circumstances from a contractual tenant.
As a landlord under most common law leases is usually obliged to lodge a notice of default before exercising an entitlement to forfeit a lease (in some jurisdictions in most situations of default and in other jurisdictions except when it involves default in payment of rent) it is a small step to apply a statutory tenancy approach to common law leases. The idea that a landlord should not be deemed to have elected to forfeit a lease until the notice period is complete reflects principles applied in contract law. In The Commonwealth v Verwayen, Brennan J stated 'that a right is waived only when the time comes for its exercise and the party for whose sole benefit it has been introduced knowingly abstains from exercising it, a mere intention not to exercise a right is not immediately effective to divest or sterilize it.' It is quite clear from the provisions that normally regulate the termination of leases that the ability of a landlord to use this remedy is subject to the tenant continuing to remain in default during the notice period. If the tenant remedies the default in that notice period the landlord is not entitled to continue with the action mentioned in the notice. It is difficult to justify requiring a landlord to refuse to accept rent in the period up to and during the notice period as the obligations of both parties continue during that period subject to possible action at the end of the notice period. In Matthews v Smallwood, Parker J stated that '[w]aiver of a right of re-entry can only occur where the lessor, with knowledge of the facts upon which his right to re-enter arises, does some unequivocal act recognizing the continued existence of the lease.' It is submitted that an unequivocal act cannot be made until the landlord has that right after the end of the notice period.
In recent times an impetus has developed towards promoting the resolution of disputes without resort to litigation. When a landlord is dealing with a tenant in default then flexibility in negotiations can assist the process of resolving that dispute. If a landlord can continue to receive rental after a non-recurring breach then this will reduce the financial strains that may apply while it is determined what is, or is not, default and what might be the options of the landlord in response to any alleged breach of the lease. A landlord is obliged to determine if it should terminate the lease and then seek to relet the premises to a hopefully more reliable tenant in what might be a difficult commercial rental market. The common law principles discussed above suggest that if the landlord is contemplating forfeiting a lease because of some non-continuing breach by the tenant, it must refuse to accept rent in that period. This will likely add to the urgency of those negotiations as what is at stake for both parties is a potentially longer period of non-payment of rent.
If advised that it should refuse payment of rent, and that it will not assist the landlord to accept rent without prejudice to the landlord's entitlements, the ability to reach a negotiated solution will be affected. No doubt prompted by hard nosed legal advice drawing on the traditional view of waiver, the landlord will be provided with two stark choices. If the landlord accepts the rent tendered by the tenant after the landlord has notice of the breach, the landlord will be deemed to have waived its entitlement to forfeit the lease. Any resolution of the default issue will involve expensive and long winded litigation (a prospect that is not likely to appeal to either party whether the amounts involved are large or small). The other stark choice is to refuse the proffered rent and move to forfeit the lease. This may be necessary despite the fact that a negotiated settlement may be possible if both parties could negotiate without immediate financial restraints and the strictures of the common law involved. A landlord should be given some time to determine its approach and to accept rent while that decision-making process continues and to accept rent up until it is obliged to elect to forfeit or affirm the lease.
It is striking when reading authorities in this area of law that the traditional view of waiver is readily quoted and applied. This is done without a full consideration of the policy consequences for landlords and tenants. The strict approach to waiver may have been appropriate when tenants were exposed to forfeiture by landlords and their tenure was somewhat uncertain. That position has changed. Today landlords will typically be obliged to serve a statutory notice indicating the alleged default if the default is in relation to other than outstanding rental. Before any further action is possible a tenant is given the opportunity to make good that default either through completing the activity contemplated or by negotiation with a landlord. Even if a tenant is unable to satisfy the default within the statutory period, a tenant has the ability to seek and to obtain relief from forfeiture. Generally courts are amenable to tenants who can indicate their intention to remedy their default. These more modern developments should be reflected in the application of common law principles that apply in relation to waiver to better re-balance the relationship in commercial leases. The law should support the policy goals of promoting the resolution of disputes and supporting the enforcement of legal obligations exemplified by the provisions of a lease. If the law dealing with the doctrine of waiver fails to encourage the payment of rental in the period when a landlord is considering its options then it may be doubted if the law is achieving its purpose.
[*] Associate Professor, Faculty of Law, Bond University.
 Segal Securities Ltd v Thoseby  1 QB 887, 897 (Sachs J).
 McDrury v Luporini  1 NZLR 653, 633.
 Doe d Lloyd v Powell  EngR 152; 108 ER 115; A J Bradbrook, S V McCallum and A P Moore, Australian Real Property Law (2002) 461.
 (1601)4Co Rep119B.
 Property Law Act 1974 (Qld), s 119; Property Law Act 1952 (NZ), s 115; Conveyancing Act 1919 (NSW), s 120.
 P Butt, Land Law (4th ed, 2001) 338.
 McDrury v Luporini  NZCA 309;  1 NZLR 652, 664.
 Estates (Belgravia) Ltd v Woolgar (No 2)  EWCA Civ 4;  1 WLR 1048.
 Penton v Barrett  UKLawRpKQB 149;  1 QB 276.
 M Pawlowski, The Forfeiture of Leases (1993) 146.
 City and Westminister Properties (1934) Ltd v Mudd  1 Ch 129.
 London and Country (A and D) Ltd v Wilfred Sportsman Ltd  1 WLR 1215.
 Butt, above n 7, 338.
 McDrury v Luporini  NZCA 309;  1 NZLR 652, 656.
 Central Estates (Belgravia) Ltd v Woolgar (No 2)  EWCA Civ 4;  1 WLR 1048.
 Segal Securities Ltd v Thoseby  1 QB 887, 887-898.
 Ibid 898.
 Argyle Art Centre Pty Ltd v Argyle Bond and Free Stores Pty Ltd  1 NSWLR 377.
 Central Estates (Belgravia) Ltd v Woolgar (No 2)  EWCA Civ 4;  1 WLR 1048, 1052.
 Butt, above n 7, 339.
 Selwyn v Garfit (1888)38ChD273.
 Perry v Davis  EngR 187; (1858) 3 CB (NS) 769; Bradbrook, above n 4, 462.
  EngR 626; [1857-1858] 6 HLC 672.
  UKLawRpCh 33;  1 Ch 777, 786-787.
 Craine v The Colonial Mutual Fire Insurance Co Ltd  HCA 64; (1920) 28 CLR 305, 325-326; Owendale v Anthony  HCA 52; (1966-1967) 117 CLR 539, 560.
 Owendale v Anthony  HCA 52; (1966-1967) 117 CLR 539, 581, 590, 609; Inner City Businessmen's Club Ltd v James Kirkpatrick Ltd  2 NZLR 636, 641-644.
  NZCA 309;  NZLR 652.
 See the cases in Pawlowski, above n11, 150 where a failure to put premises in repair; to build before a particular date; to reinstate premises within a reasonable time; and a breach of a covenant not to make alterations were deemed to be non-recurring defaults.
 See, eg, Property Law Act 1974 (Qld), s 124.
 McDrury v Luporini  1 NZLR 653, 656.
 Ibid 656-657.
 Ibid 658.
 Ibid 658.
 Ibid 659.
  3 NZLR 190, 193; McDrury v Luporini  1 NZLR 653, 659.
 McDrury v Luporini  1 NZLR 653, 660; Commonwealth v Verwayen (1990) 170 CLR 394, 427 (Brennan J).
 McDrury v Luporini  1 NZLR 653, 661; PLuxton, 'Business Property -Waiver of Forfeiture: Time to shake the doctrine of election' (1991) Journal of Business Law 342.
 Mc Drury v Luporini  1 NZLR 653, 662.
 Ibid 661.
 Ibid 663.
 Ibid 664.
 Ibid 665.
 Ibid 666.
 Ibid 665.
  QSC 313.
  EngR 27; (1778) 2 Cowp 804.
 McDrury v Luporini  1 NZLR 653, 658.
 Ibid 658.
 Pawlowski, above n 11, 139; Segal Securities Ltd v Thoseby  1 QB 887, 889 (Sach J).
 Luxton, above n 39, 438.
 Earl Bathurst v Fine  1 WLR 905.
 2All ER1.
 Ibid 6.
 See also Campbell v Payne (1953) 53 SR (NSW) 537.
 (1990) 170 CLR 394.
 Matthews v Smallwood  1Ch 786.
 H Astor and C Chinkin, Dispute Resolution in Australia (2nd ed, 2002) 4.