Wrangling With Forfeiture - And Finding The Right Solution

Commercial landlords will often have a right of forfeiture depending on the wording of their leases and on the kind of breaches by the tenant. In other words, if the tenant is in breach of its covenants, subject to the terms of the lease, a landlord could take action to terminate the lease early.

However, landlords should think carefully before they start serving notices. They might risk losing their negotiating position with a tenant, or even face a claim for relief from forfeiture from the tenant. Landlords should also check whether the specific breach they are dealing with is a continuing one or a ‘once and for all’. If they have a ‘once and for all’ breach, landlords should also check whether they have ‘waived’ the right to forfeiture before they start in order to avoid a costly wrongful forfeiture claim.

However, the recent case of Tropical Zoo v London Borough of Hounslow (May 2024) provides authority for the possibility that landlords can sometimes have another bite of the cherry, even when breaches have long since passed, provided their leases give them this right and that they use it carefully.

One breach is not like another

A landlord could quite easily waive a right to forfeiture without even being aware of it. However, the landlord might have a reprieve depending on the kind of breach in question.

• If the tenant fails to keep the property in repair (and there is no repairing deadline), this will be a continuing breach and every day that the property remains in disrepair, a new right to forfeit arises.
• On the other hand, if a tenant has entered into an unauthorised assignment or sub-letting, that is considered to be a once and for all breach, and the landlord can waive its rights and not be able to rely on the tenant’s breach to forfeit the lease later. However, sometimes these kinds of breach can be intermingled, so expert advice is recommended to consider what kind of breach has taken place.
• A waiver of rent is something of an in-between breach. If a failure to pay rent is waived for one period, the breach in that rental period cannot be used to end the lease. However, the next time rent becomes due and remains unpaid, a new right to forfeit will arise.

What is waiver?

It might seem easy to recognise when a right has been waived, but certain actions a landlord may take in the normal course of business could unintentionally undermine their rights. A waiver takes place in three parts:

• Knowledge: The landlord has knowledge of the tenant’s breach

The knowledge must be more than a suspicion, but it could be implied from the knowledge of a landlord’s employees or agents. However, the breach being in the public domain might not be enough to imply specific knowledge on the part of the landlord.

• Act: The landlord unequivocally acts in a way that recognises the continuing lease

This act can come in many shapes and forms. A demand for and/or acceptance of rent will be deemed as a waiver. However, sitting back and doing nothing might not save a landlord from losing the right to forfeit – sometimes a long and continued acceptance of or acquiescence in a breach might also be an “act” of recognition.

• Communication: That recognition referred to above is communicated to the tenant

The communication will be considered to have taken place once the tenant has received it. This can be a bit of a nebulous concept, especially where the “act” was doing nothing!

Final reprieve

Recently, the courts found an innovative way in which landlords might still be able to use forfeiture where a tenant has breached their lease, even where the landlord appears to have waived their right to forfeit the lease by that breach.

In Tropical Zoo, the tenant had breached a covenant of the lease to build a zoo on the land by a required deadline. The landlord did not formally start to bring this breach to the tenant’s attention until six years after that deadline. However, the landlord’s lease contained a clause which required the tenant to remedy any breaches of the lease brought to its attention by the landlord within two months of notification.

The landlord sent the tenant a letter raising the fact that the tenant had not met the deadline to construct the zoo six years ago, and required the tenant to remedy this breach within two months. Obviously, the tenant was unable to remedy the breach in the timeframe given, allowing the landlord to serve a Section 146 forfeiture notice two months after the letter, and the landlord refused to accept rent.

The court found that, because the notice requiring the breach to be remedied had created a new obligation on the tenant to remedy its earlier breach, its later failure to remedy the same breach (however unlikely that was in the timescale) created a new breach, which in turn the landlord could immediately act on to forfeit the lease.

Forfeiture can be a far more complex process than it initially appears. Landlords seeking to terminate a lease through forfeiture must navigate a variety of legal requirements and potential pitfalls, which, if not handled correctly, could jeopardise their position or result in costly delays. It’s essential to work closely with legal advisors to ensure the correct procedures are followed and to explore all available options. A tailored legal strategy can help landlords protect their rights and reach the best possible outcome in these situations.

If you’re considering forfeiture or facing a related challenge, reach out to our team today to discuss further and find the right solution for your specific needs.