Accepting the rent irrespective breach of contract has its consequences

The fact that the lessor accepted the rent for several years, even though there was a breach of the lease conditions on the part of the lessee, has its consequences. This was held in a judgement delivered on 27 September 2021 in Bonnici & Zahra Limited -v- Caros Holdings Limited by the Rent Regulation Board presided by Magistrate Dr Josette Demicoli. The Applicant Company filed an application wherein it explained that the Parties entered into a lease agreement with Caros Holdings to rent out a commercial complex in Qormi. The lease agreement was signed in 2000 and during these 20 years the lease agreement was extended.

However, according to the lease agreement, the tenants, Caros Holdings were to issue an insurance policy which was to be approved by the owning company Bonnici Zahra Ltd. The Applicant Company requested copies of the insurance policy but never received it and in terms of Article 1570 of the Civil Code the lease can be terminated because there was a breach of a condition. The Applicant Company asked the Court that Caros Holdings was in breach of the lease agreement and to terminate the lease.

The Defendant Company replied by saying that the property was insured and the Applicant Company’s interests were protected. Furthermore, such a breach should not result in termination. The Board referred to the Applicant’s submissions which stated that the Defendant Company never bought the insurance policy. This was purchased by the subtenant. Furthermore, there was no approval by the Applicant Company. The Defendant Company emphasized that the Applicant Company was in fact protected and there was an insurance policy in place. The fact that the Applicant Company did not have a copy of the policy did not prejudice its position.

The evidence produced shows that the property was subleased a number of times. In August 2008 the Applicant Company sent a letter to the Defendant Company reminding them of their obligation to purchase a suitable insurance policy and to pay for the replacement of a door which was removed.

Another similar letter was sent in February 2018. The evidence showed that the Defendant Company always paid the rent, which was accepted by the Applicant Company. The Board was shown a copy of the insurance policy issued by the sublessee and the Board noted that the policy did include the building and included insurance against earthquakes and fire was not excluded from the policy. The policy started on 1 September 2013 with a maximum €700,000.

The policy also covered both parties to this case. The Board in its considerations held that it was clear that before November 2011 the property was not covered by an insurance policy. Even when the Defendant Company received a letter from the Applicant Company the copy of the policy was not passed on. The Board was being asked to terminate the lease and based the actions on Article 1570 of the Civil Code which states that the lease may be terminated even if there is no resolutive condition, if one of the conditions is not adhered to. The Board may either order that the condition be adhered to or the lease be terminated together with damages.

The Board held that one would have to examine Articles 1566, 1567, 1568 and 1569 (1) which list the circumstances under which a lease may be terminated. Articles 1569 (2) and (3) state that if the owner wants to terminate, he/she should send a judicial act. If there is a resolutive condition in the lease agreement then the Board is precluded from giving time to the tenant to do what is required. In this particular case, the Applicant Company did accept the rent for 17 years irrespective of the fact that it did not have a copy of the insurance policy.

It took the Applicant Company 10 years to remind the Defendant Company to send copies of the policy. In Katia Mercieca noe v Joseph Bezzina decided by the Court of Appeal on 4 October 2019 held that by accepting the rent there was a tacit consent that irrespective of the breach the lease should continue. Apart of this point the Board held that it is satisfied that from November 2011 there was a valid insurance policy. The Board moved to reject the claims as listed in the application.