Increasing rent arrears can signal that a tenant is having financial difficulties. A tenant may start scrabbling around to try and pay something to the landlord to stave off forfeiture but accepting a payment plan or an attempt by the tenant to appropriate payments to a specific debt can cause problems for the landlord.

In Thomas v Ken Thomas Limited [2006] EWCA Civ 1504, the tenant had taken a lease of a warehouse for 10 years at a rent of £400,000 per year. The rent was payable monthly in advance. Rent was initially paid but, in November, the tenant failed to make a payment. In early December, a letter was written to the landlord confirming that a company voluntary arrangement (CVA) had been proposed.

It was also proposed that the tenant would make two payments in December to cover December’s rent and that the rent owing for November would go into the CVA. The landlord stated that it did not accept this proposal and instead put the two instalments towards payment of November’s rent.

In January the tenant proposed, and the landlord accepted, that rent could be paid weekly. In February, the landlord commenced forfeiture proceedings for the non-payment of one month’s rent.

The Court held that the landlord was not entitled to forfeit the lease. The tenant was perfectly entitled to appropriate payments to particular debts and the landlord either had to accept the tenant’s proposal or reject the payments. As the landlord had accepted the payments for later months, he had waived his right to forfeit for the outstanding sums relating to November.

This creates a difficult situation for landlords. When a landlord becomes aware that a tenant is in financial difficulties, it may take the view that it would rather accept some money now as opposed to returning the payment offered, demanding full payment and potentially getting nothing. However, acceptance in such a situation means that it will be bound by the tenant’s terms and unable to forfeit. It is a useful tool for tenants as they can play on the fact that a landlord will be reluctant to turn away payments and in this way stave off forfeiture.

The moral of the story, perhaps, is to have in mind a long-term strategy. Once a landlord is aware that a tenant is struggling, careful consideration should be given to ensuring that any right to forfeit is not waived. This is the case even though the landlord will have a desire to obtain money in the short term in respect of rent.