Breach of Covenant: Whether Acceptance of Rent by an Agent Amounted to a Waiver of Breach of Lease (The Tropical Zoo Ltd v Hounslow LBC – 2024)

Where a leaseholder breaches a lease term, does the acceptance of rent by a managing agent amount to a waiver of that breach?

The background

In The Tropical Zoo Ltd v Hounslow LBC [2024], the claimant was the leaseholder under a 125-year lease granted by the defendant landlord in 2012. The claimant was a zoo operator, and the lease enabled the leaseholder to relocate the zoo from elsewhere. Under the terms of the lease, the leaseholder was to construct the zoo building and education centre within two years of the lease date, but this covenant was not met.

The landlord had the right to forfeit the lease where there had been a material breach of covenant on the part of the leaseholder, and the lease also contained a more bespoke leaseholder covenant at c.9.1 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 landlord served a notice on the leaseholder pursuant to cl.9.1 in November 2020, referring to the leaseholder’s failure to construct the necessary buildings within 2 years of the date of the lease, and requiring the leaseholder to remedy the breach within 2 months. This requirement was not met, and the landlord proceeded to seek forfeiture, serving a s.146 notice under the Law of Property Act 1925.

The landlord’s managing agent was instructed not to accept rent. However, the agent received rent from the leaseholder in March 2021 and September 2022, and did not immediately return rents paid. The High Court was asked whether the agent amounted to a waiver of the leaseholder’s breach and therefore whether relief from forfeiture could be granted.

The decision

The High Court refused the leaseholder’s application for relief from forfeiture, finding that the leaseholder was unable to evidence that the breach would be remedied were forfeiture to be granted.

The High Court considered the extent of the agent’s authority, finding that it did not manage the property and only having authority to demand and accept rent, thus limiting the extent by which it was in a position to make decisions as to the continuation of the lease. In its judgment, 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”

Further, the court considered whether the parties could contract out of waiver through the lease terms. The High Court in this instance found that the lease wording – stating that the landlord could forfeit the lease regardless of whether it had waived a right to do so previously – did not attempt to contract out of the doctrine of waiver.

Cl.9.1 was permitted, concluding that the further breach this created would necessitate an additional waiver in order to prevent the landlord from exercising its right to forfeiture. The clause essentially gave the landlord a further option for forfeiture even where a previous breach may have been waived.

Advice and action for landlords

A number of the High Court’s findings in this case will be of relevance to landlords. The extent of the agent’s instructions was significant, concluding that the conduct of an agent appointed only to demand and collect rent could not amount to a waiver where it did not also have wider responsibilities and duties in relation to the management of the asset.

The drafting of cl.9.1 gave the landlord some flexibility and further options in terms of forfeiture which may be appealing to others, such as creating the opportunity to forfeit at a more preferable time, although tenants are likely to resist.