The High Court has recently ruled on the case of Tropical Zoo v Hounslow LBC in which the court considered non-standard lease drafting and whether the local authority had waived its right to forfeiture of the lease due to its agent’s acceptance of rent.

The judgment highlights how the process of enforcing the right of forfeiture must be carried out diligently, to avoid a landlord inadvertently waiving this right.

Background

In 2012, Hounslow Council issued a 125 year lease to Tropical Zoo. The lease included several non-standard clauses, including a covenant to construct a zoo building and education centre within two years of the grant of the lease. A further clause required Tropical Zoo to remedy a breach of a tenant covenant within two months of being notified of the breach by the landlord. 

By 2014 construction had not yet commenced, however, despite this, Hounslow Council did not exercise their right to forfeit for breach of covenant and continued to demand and accept rent.

In 2020, the zoo building and education centre were still not built. In response, Hounslow Council issued notice requiring Tropical Zoo to remedy the breach within two months of service of the notice in accordance with their right to do so under the lease. When Tropical Zoo failed to remedy the breach, Hounslow Council issued forfeiture proceedings and told their agent to stop accepting rent. However, Tropical Zoo continued to make rent payments which the agent accepted and did not immediately return.

Since the rent was accepted and not immediately returned, Tropical Zoo claimed that this constituted waiver of Hounslow Council’s right to forfeit and claimed that relief from forfeiture should be granted. 

It is worth noting that standard breach of covenant clauses give a landlord a right to forfeit for a ‘once and for all breach’. In this case, however, Tropical Zoo’s breach was a continuing breach, meaning a fresh right to forfeit arose every day that the breach wasn’t remedied, even if a previous right had been inadvertently waived.

The key questions before the court were whether the agent’s acceptance and delay in returning rent payments after a forfeiture notice had been served amounted to a waiver and whether relief from forfeiture would be granted.

Decision

The court held that, though an agent’s acceptance of rent can be evidence of a waiver, even if that acceptance is by accident, a landlord may not be regarded as having accepted rent and therefore having waived the breach solely on the basis of an agent’s acceptance of rent. In the absence of a waiver, the court held that since Tropical Zoo could not demonstrate that they would remedy the breach if relief was granted, they would not grant relief in this case.

Key takeaways

This case demonstrates the following:

• For landlords: how easily the right to forfeiture can be inadvertently waived by the landlord when seeking to enforce a breach of covenant by the tenant. Should the landlord inadvertently waive its right to forfeit, its options would be seriously limited in enforcing the terms of the lease.
• For tenants: Non-standard clauses which give rise to continually refreshing right to forfeit should be avoided where possible.

How Capsticks can help

Our specialist local government advisors can advise you on drafting leases to provide the optimum protection whether you are landlord or tenant. We are also able to provide advice and assistance from the moment a breach of covenant arises in order to enable you to best mitigate risk.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Tiffany Cloynes to find out more about how Capsticks can help.