This Legal Update discusses the case of Tropical Zoo Ltd v Hounslow LBC [2024] EWHC 1240 (Ch).  The case relates to an appeal made by Tropical Zoo Limited, the tenant, that Hounslow LBC, the landlord, had waived their right to forfeiture as a result of acceptance, or at least a delay in returning, rent payments made and later rejected.  This Legal Update deals with one of a number of often put forward claims that a landlord has waived, and therefore relinquished, its enforcement option of forfeiture.  Another is dealt with in our Legal Update which answered the question - Does seeking a CCJ waive the landlord’s right to forfeit a lease?  

Where a leaseholder is in breach of the terms of the lease, the landlord must elect either to forfeit the lease or not.  If, as is often advised, it elects to forfeit the lease for that breach, then whilst the landlord is going through the enforcement process toward forfeiture, he must not recognise the continuance of the lease, as to do so will (depending on the specific breach) waive that right of forfeiture for that breach.  In preserving his right to forfeit, and amongst other things, the landlord must neither demand or accept payment from the leaseholder.

As is often the case, an errant leaseholder may tender payments throughout the enforcement process, either because they are ignorant of the breach that they have committed and the pending action for forfeiture of their lease, or the payment is made as a tactical game to try to fool the landlord into waiving its forfeiture right.  

Where a payment is tendered by the leaseholder it must be rejected and/or return to the leaseholder.  What happens, though, if the landlord is a bit slow in returning a payment?  Does that amount to an acceptance and so waive the landlord’s right to forfeit the lease for the breach?

Background

Since taking on the lease, the leaseholder in the above case had run ‘Hounslow Urban Farm’ with a collection of animals present on the 25 acre site rented from the landlord and which the farm operated.  It had agreed in taking the lease of the site to erect within the first two years a zoo and education centre.  I had neither completed nor even started that constructions of the proposed zoo and education centre building and was therefore in breach of that term in the lease that it must do so.  

The landlord took enforcement action in which it sought forfeiture of the lease for non-compliance with the construction covenant.  The tenant tendered payments of rent throughout the litigation but which the landlord had, entirely correctly, not demanded and which the landlord dutifully returned to the tenant rejecting the same.  Some of those payments though, those made in March 2021 and September 2022, were not returned for several months following receipt by the landlord and so the leaseholder argued that the landlord had accepted those payments thereby waiving its right to forfeit the lease or, alternatively, that the court should grant relief from forfeiture due to the delay in the return of the same.

The Decision

The delay in returning the March 2021 and September 2022 rent payments to the tenant did not constitute an acceptance of rent by the landlord, and therefore the landlord had not, thereby, waived its right of forfeiture.  As a result, the tenants application for relief from forfeiture was refused.

This case is a timely reminder to all to be careful not to inadvertently waive the right of forfeiture when seeking to enforce a breach by a tenant.  Waiver can happen in many ways and it is easy to get it wrong without realising.  

Waiving the right of forfeiture can seriously restrict a landlord’s options where the lessee is in breach, but it can lead to real problems, often insurmountable, in recovering costs under the lease too.

It is therefore really rather important to be very careful from the point that you become aware of the breach and follow the “Golden Rule”.

The Golden Rule

The Golden Rule is (and has always been) ‘If in doubt - ask the lawyer first and only then act’.  

This approach avoids any inadvertent waiving of the landlord’s right and potentially costly errors, ensuring that the correct procedure is carried out on behalf of all clients.  

We have set out in our Legal Update: When leaseholders are in breach - some Do’s and Don’ts some helpful pointers on how to handle leaseholders in breach.

Disclaimer

This Legal Update describes the position in law as at the date of this article and care should be taken to note any subsequent amendments to the position as set out above.  The Legal Update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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