June 24, 2024
Our property law team delve into the case, discussing the breach of lease covenants, and highlight key takeaways for future lease drafting and enforcement.
Background
Leases and the way they are drafted are becoming more standardised as time continues. Having standard clauses where possible allows more certainty for all parties and can help a landlord’s management of large property portfolios.
Lease covenants govern the way each party behaves during the term and after the lease expires. These can vary based on the parties, or the type of property over which the lease is being granted.
Broadly speaking, a breach of a lease covenant by the tenant is either a “once-and-for-all” breach, or a “continuing” breach.
Where a breach is a once-and-for-all breach, such as payment of rent and other sums due, and the landlord makes no attempt to terminate the lease, the landlord can waive the right to do terminate the lease, for example by demanding rent, and then be unable to pursue the tenant for the breach.
A continuing breach arises afresh each day, so even if inadvertently waived by a landlord, a fresh breach occurs the next day.
Tropical Zoo case
This case arose as a result of a lease entered into between the Mayor and Burgesses of the London Borough of Hounslow and Tropical Zoo Ltd. The lease also contained an obligation on the tenant to erect a zoo building. As well as this, the lease featured a non-standard provision requiring the tenant 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 did not forfeit the lease following the failure to erect a zoo building, and continued to accept and demand rent. In November 2020, the landlord served notice under the above provision, requiring the tenant to remedy its breach and to construct the zoo building within two months. The tenant failed to do so and the landlord sought to forfeit the lease. However, the managing agent continued to demand rent from the tenant despite the landlord having instructed it not to.
The tenant subsequently sought relief from forfeiture. The court found that as at January 2021 (when the landlord’s notice expired), the landlord had not previously waived the breach. Consequently, the judge refused to grant the tenant relief from forfeiture.
What are the outcomes of this case?
The non-standard clause in the lease may have been bespoke to the lease, but landlords may view such wording as a chance to allow forfeiture at a time convenient to the landlord, such as when they have a replacement tenant lined up.
It should be noted that the breach in this case could have been remedied; the tenant was unlikely to be able to finish construction of a zoo building within 2 months but had been in occupation and liable to do so for at least 6 years. It remains to be seen whether this type of clause would be effective against a breach that cannot be remedied.
The court also made a distinction between an agent with full authority and an agent appointed only to perform the ‘treasury function’. In this case, as the agent was only performing a treasury function and was not responsible for any wider responsibilities and duties under the lease, their demand for rent did not amount to a waiver.
If you require legal assistance on leases, get in contact with one of our commercial property law experts, Oliver Morris on 029 2082 9123 or omorris@darwingray.com, for a free initial chat to find out how we can help you and your business.
