Landlord and tenant – Forfeiture of lease – Relief from forfeiture – Claimant holding lease of green belt land – Defendant landlord forfeiting lease for breach of tenant covenant – Claimant seeking declaration that lease not liable to be forfeited – Whether defendant waiving right to forfeit – Whether claimant entitled to relief from forfeiture – Claim dismissed
In March 2012, the defendant local authority granted a lease of approximately 25 acres of green belt land near Heathrow Airport to the claimant for use as a centre for education, conservation and leisure including a tropical zoo visitor attraction and associated facilities. The lease included covenants requiring the claimant to construct a zoo building and education centre within two years of the grant of the lease.
The claimant ran Hounslow Urban Farm on the site, with around 489 vertebrates, including mammals, birds and reptiles, plus 73 invertebrates; but did not construct the proposed zoo building. The defendant notified the claimant of the breach of covenant and required it to remedy that breach within the two-month period specified in paragraph 9.1 of schedule 2 to the lease.
The notice period expired and the defendant served a notice under section 146(1) of the Law of Property Act 1925 requiring the claimant to remedy that breach “within a reasonable time”, and stating that if it failed to do so, the defendant intended to re-enter the premises pursuant to clause 5.1.1 of the lease and claim damages for breach of covenant.
The defendant instructed its agents not to demand or accept rent but the claimant continued to pay rent which was returned promptly, save for payments in March 2021 and in September 2022.
The claimant contended that the defendant had waived its right to forfeit and claimed declaratory relief to that effect or, alternatively, relief from forfeiture.
Held: The claim was dismissed.
(1) It was not disputed that the claimant breached its obligation under the lease to construct the zoo building within two years of grant of the lease. Further, since that obligation was a covenant to carry out an act within a specified period, the breach was a “once and for all” breach of covenant rather than a continuing breach. Waiver of the right to forfeit for such a breach was irrevocable and did not revive on each day that the breach subsisted: First Penthouse Ltd v Channel Hotels & Properties (UK) Ltd [2004] 1 EGLR 16 applied.
It was also common ground that the defendant continued to accept rent from the claimant after that breach and thereby waived its right of forfeiture. Accordingly, unless clause 5.1.1 entitled the defendant to forfeit the lease for a breach notwithstanding waiver in relation to that very breach, it could not rely on the claimant’s initial failure to construct the zoo building as a basis for forfeiture.
The defendant therefore relied on the claimant’s failure to comply with the paragraph 9.1 as giving rise to a further and separate right of forfeiture under clause 5.1.1.
(2) Paragraph 9.1 constituted a freestanding tenant covenant, material breach of which triggered a right of re-entry and forfeiture under clause 5.1.1. Paragraph 9.1 had to be interpreted objectively having regard to the contract as a whole and all the relevant surrounding circumstances. It was common ground that the clause was a variant on a Jervis v Harris clause, whereby a breach of the covenant might give rise to either a claim for damages or proceedings for forfeiture of the lease.
Paragraph 9.1 set out a clear primary obligation on the tenant to remedy the identified breach. While paragraph 9.2 provided a remedy in the landlord’s right to step in and remedy the breach itself, nothing in paragraph 9 (or any other provision of the lease) indicated that the normal remedies of damages or forfeiture were excluded, such that the landlord’s step-in right was the only remedy for breach of the obligation to remedy on notice. The claimant materially breached its tenant covenant by failing to comply with the paragraph 9.1 notice: Jervis v Harris [1996] 1 EGLR 78 considered.
(3) For waiver of a right of forfeiture to occur, the landlord had to know the facts giving rise to the right of forfeiture and, with that knowledge, the landlord had to do some “unequivocal act” which affirmed the continuation of the lease. The assessment of whether there was an unequivocal act of waiver was objective and the subjective motive or intention of the landlord was irrelevant, as was the tenant’s understanding of the legal consequences of the act: Matthews v Smallwood [1910] 1 Ch 77 and Central Estates (Belgravia) v Woolgar (No 2) [1971] 220 EG 803; [1972] 1 WLR 1048 considered.
(4) An agent with actual or ostensible authority to make decisions as to the continuation of a lease following a breach of covenant might waive forfeiture by accepting rent, even if the agent had been instructed not to do so, and even if the acceptance of rent was accidental, such as the result of a clerical error on the part of an employee of the agent.
On the evidence, the defendant’s agents had no authority to make decisions on its behalf and the delay in returning the March and September payments did not constitute the acceptance of rent by the defendant which did not thereby waive its right of forfeiture: Central Estates and John Lewis Properties plc v Viscount Chelsea [1993] 2 EGLR 77 considered.
(5) Relief from forfeiture was discretionary, and the court had to have regard to the individual circumstances of each case. In the cases of breaches of covenant other than non-payment of rent, it was usual for relief to be granted on terms that the tenant should remedy the breach, and the court was entitled to refuse relief if there was insufficient evidence of the tenant’s financial ability to do so: Associated British Ports v CH Bailey [1990] 1 EGLR 77 and Darlington Borough Council v Denmark Chemists [1993] EGLR 62 considered.
There was no doubt that the construction of the zoo building was a fundamental basis on which the lease was granted to the claimant in the terms ultimately agreed. The claimant had been in breach of covenant for many years, and had consistently failed to secure finance for the building of the zoo within the terms of its lease.
In assessing whether there was a real likelihood or real prospect of the conditions being met, the court had to consider carefully the evidence before it. In this case, the court was not persuaded that there was a real likelihood that the claimant would be able to build the zoo, if that was ordered as a condition of the grant of relief. Therefore, there was an insufficient basis for the court to exercise its discretion to grant relief from forfeiture.
Julian Greenhill KC and Ernest Leung (instructed by Forsters LLP) appeared for the claimant; Martin Hutchings KC and Daniel Petrides (instructed by Bevan Brittan LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of The Tropical Zoo Ltd v Hounslow London Borough Council