Judgment has recently been handed down in The Tropical Zoo Ltd -v- The Mayor and Burgesses of the London Borough of Hounslow [2024].
Background
The Claimant, a zoo operator, was granted a lease in 2012 of a piece of land near Heathrow airport for 125 years. Since the grant of the lease the Claimant has run Hounslow Urban Farm on the site.
It was a term of the lease that the Claimant would construct a zoo building and education centre on part of the land within 2 years of grant of the lease. Although the Claimant has run the farm from the site, it had failed to construct either building as required.
As a result in 2020 the Defendant, a local authority, served two forfeiture notices on the Claimant, requiring the tenant to remedy the breach of the lease within 2 months.
The Defendant had instructed its agent not to accept rent, but subsequent rent payments in March 2021 and September 2022 were received and not immediately returned.
The Claimant subsequently issued proceeding seeking declarations that the right to forfeit has been waived by acceptance of rent, and in the alternative that it should be granted relief from forfeiture.
The findings
After a 5-day trial, the Judge found in favour of the Defendant, asserting that they were entitled to forfeit the lease and that the Claimant should not be granted relief.
Why of particular interest to commercial landlords and tenants?
The case considers a couple of interesting points within the Judgment, which may have implications on lease drafting and have the potential to lead to new arguments on waiver.
Lease drafting implications
The lease in this case contained a non-standard covenant from the Claimant 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 covenant was found to be valid in this case and effectively allows the landlord a second bite of the cherry, in particular where an alternative right to forfeit may have been waived.
This drafting is uncommon and was likely included due to the bespoke nature of the lease and use of the land.
This particular clause is clearly very favourable to the landlord and is one which a well-advised tenant would not be minded to agree. However, warnings should be given to unrepresented tenants who may fall into the trap and enter into leases with this clause without awareness of the consequences this may have for them.
Waiver arguments
A landlord can waive the right to forfeit by virtue of its action. This can occur when the landlord is aware of the breach, performs an act which recognises the lease as continuing and communicates that act to the tenant. This most commonly occurs with demanding and accepting the rent.
In this case the court considered the authority of a landlord's agent in relation to waiver, in particular with regard to the rent that was accepted and not immediately returned.
The court held that the Defendant's agent did not have full authority to manage the property or make commercial decisions about the lease and its role was instead limited to performing the 'treasury function' of demanding and collecting rents. Therefore, receiving the rental payments were, in these circumstances, not considered to be acceptance of the rent or acts of waiver.
This draws a potential distinction between an asset manager and a managing agent and may lead to some arguments in the future that a pure managing agent receiving rent does not amount to waiver, unless coupled with additional landlord conduct or responsibility.
What next?
The Claimant has been granted permission to appeal to the Court of Appeal, so watch this space…
If you would like any more advice on this area, then please get in touch with our Real Estate Disputes Team.
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