A landlord can, in certain circumstances, forfeit a commercial lease either by peaceable re-entry to the property or by issuing forfeiture proceedings against the tenant in the event of a breach of the lease terms. Re-entry occurs when the landlord exercises a right under the lease to terminate it and regain possession of the property. However, a landlord’s right to re-enter for a breach of lease is subject to several restrictions. One crucial restriction is that if a landlord has waived the right to forfeit, they will be unable to forfeit the commercial lease.
In this article, we examine the case of Tropical Zoo Ltd (Tenant) v Mayor and Burgesses of the London Borough of Hounslow (Landlord) [2024] EWHC 1240 (Ch), where the High Court distinguished between “once-and-for-all” and “continuing” breaches. The case also considered the role of managing agents in waiving a landlord’s right to forfeit a lease.
Background
On 7 March 2012, the Landlord granted a 125-year lease to the Claimant. The lease included a covenant requiring the Tenant to construct a zoo building and education centre within two years. It also contained a forfeiture clause stating:
“To remedy any breach of a Tenant Covenant Notified by the Landlord to the Tenant as soon as possible and in any event within two months after service of the Notice.”
The Tenant failed to construct the zoo or commence any construction work. On 6 November 2020, the Landlord served a notice on the Tenant requiring the breach to be remedied within the specified two-month period. This deadline expired without compliance, and the Tenant took no further steps to progress the building of the zoo.
On 16 February 2021, the Landlord served a further notice under Section 146 of the Law of Property Act 1925, requiring the breach to be remedied within a reasonable time and confirming its intention to re-enter the property if the Tenant failed to comply.
Meanwhile, the Landlord instructed its rent collection agent to cease demanding or accepting rent from the Tenant. Although no further rent demands were issued, the Tenant continued making payments into the agent’s client account until the end of 2022. All but three of these payments were returned immediately.
In July 2022, the parties engaged in discussions to resolve the dispute without litigation, but no agreement was reached.
On 3 August 2022, the Tenant issued proceedings seeking a declaration that it was not in breach of the lease. The Landlord filed a defence on 26 August 2022, maintaining its intention to forfeit the lease on 26 April 2023—two years after serving the second Section 146 notice—unless the Tenant remedied its breaches by completing the zoo building.
Tenant’s Type of Breach
The law distinguishes between types of lease breaches. The key categorisation in this case was whether the breach was a “once-and-for-all” breach or a “continuing” breach. This distinction is crucial because:
- If a breach is “once-and-for-all,” the landlord can waive its right to forfeit by acting in a manner that recognises the lease as continuing (e.g., by demanding rent after the breach occurred). Once waived, the landlord cannot pursue forfeiture for that breach at a later date.
- In contrast, a “continuing” breach accrues afresh each day, meaning the landlord retains the ability to forfeit the lease despite any prior waiver.
While the classification depends on the precise wording of a lease, the following covenants are generally considered “once-and-for-all” breaches:
- To put in repair or carry out repairs by a specific date
- Not to make alterations or display signs without consent
- To pay rent or other sums due under the lease (e.g., service charges and insurance)
Accordingly, when these covenants are breached by a tenant, the landlord must be cautious to avoid waiving the right to forfeit.
Waiver of the Right to Forfeit
A landlord may inadvertently waive the right to forfeit a breach of the lease, even without realising it, by:
- Having knowledge of the breach;
- Performing an act that recognises the lease as continuing; and
- Communicating that act to the tenant.
The acceptance of rent due after the landlord becomes aware of a breach has frequently been held to amount to a waiver of the right to forfeit.
Does Acceptance of Rent by an Agent Constitute a Waiver?
A key issue in this case was the extent of the managing agent’s authority. The High Court determined that the agent did not have full authority to manage the property but was merely authorised to demand and accept rent. The agent’s ability to make decisions regarding the continuation of the lease was therefore limited.
The Court stated:
“An agent with actual or ostensible authority to make decisions as to the continuation of a lease following a breach of covenant may waive forfeiture by accepting rent, even if the agent has been instructed not to do so, and even if the acceptance of rent is accidental…[the landlord will not] be regarded as having accepted rent and thereby waiving the right to forfeit, solely on the ground that a payment of rent has been accepted by the landlord’s bank or other agent, where that agent has the authority to demand and/or collect rent but does not have any wider authority to make commercial decisions on behalf of the landlord.”
The court found in favour of the Landlord; that the non-standard provision to remedy any breach of a Tenant Covenant was a freestanding covenant and, as such, the Defendant was entitled to forfeit the lease. The judge also determined that the delays in returning the three rental payments did not constitute acceptance of the rent, and therefore, the right to forfeit had not been waived. An application for relief from forfeiture by the Tenant was also refused.
Conclusion
The extent of the agent’s instructions and authority in relation to making decisions about the continuation of the lease was an important consideration by the Court for determining whether the acceptance of rent constituted a waiver of the landlord’s right to forfeit the lease in this Case.
In practice, this decision is likely to lead to a distinction being drawn between managing agents and asset managers.
It could be argued that in light of this decision, rent acceptance by a pure managing agent—whose role is limited to demanding and collecting rent—could not amount to a waiver unless combined with other conduct by the landlord or asset manager or if the acceptance continued over an extended period.
However, if a managing agent performs additional functions beyond “treasury functions,” such as administering services or addressing breaches with tenants, their role may be viewed as more akin to that of an asset manager, potentially broadening their authority and increasing the risk of waiver.
Commercial Landlord Solicitors – Contact Us
David Burns, Senior Litigation Partner at Ronald Fletcher Baker LLP, has extensive experience handling disputes involving commercial tenants who have breached lease terms and issues related to forfeiture. For advice on this topic, please contact David Burns via email at D.Burns@rfblegal.co.uk or by phone at 07762318409.
David Burns
Senior Litigation Partner
