Failure to build zoo leads to forfeiture

Louise Clark considers issues of forfeiture where the lease value lay with a third party. Key points Waiver requires the landlord to know of the breach and to act unequivocally to confirm the existence of the lease The court’s discretion to award relief from forfeiture is exercisable in favour of the tenant, not third parties In The Tropical Zoo Ltd v Hounslow London Borough Council [2024] EWHC 1240 (Ch); [2024] PLSCS 102, the High Court has considered various allegations of waiver of the landlord’s right to forfeit and emphasised that relief from forfeiture is in the discretion of the court. The lease The case concerned a long lease of approximately 25 acres of green belt land near Heathrow Airport granted to the claimant by the defendant council in March 2012 for use as a centre for education, conservation and leisure, including a tropical zoo visitor attraction and associated facilities. The lease included covenants requiring TZL to construct a zoo building and education centre within two years of the grant of the lease. The background From lease commencement, TZL had run Hounslow Urban Farm on the site with a large collection of animals, but it had not constructed the zoo or even commenced it by the trial, let alone the long-stop date of March 2014, owing to difficulties securing funding. At a meeting in July 2014, LBH told TZL that it was in breach of covenant and that LBH was looking to develop or sell some of its green belt sites to meet a large deficit. TZL found various potential investors between late 2014 and November 2017, but negotiations came to nothing. LBH accepted rent throughout this period. In July 2019, LBH set out for public consultation its proposal to redevelop the site as an airport business park while retaining the urban farm. Subsequently, Canmoor – a property development company – came on the scene. Canmoor’s own offers to purchase the site from LBH were rejected. The option, the notice and the proceedings In late January 2020, TZL entered into an option permitting a subsidiary of Canmoor to purchase its entire shareholding. Canmoor intended to use parts of the site for the airport business park proposed by LBH, a use not permitted under the lease, which LBH refused to modify. In November 2020, LBH served notice under clause 9 of the lease, a variant on a Jervis v Harris [1996] 1 EGLR 78 clause, requiring TZL to remedy its failure to construct the zoo building within two months, failing which LBH could enter to remedy it and recover the sums spent as a debt. TZL failed to comply and, in February 2021, LBH served a section 146 notice indicating its intention to re-enter the premises if the breaches were not remedied within a reasonable time. At the same time, LBH instructed its agent, Avison Young, not to demand or accept rent for the next two years minimum. No demands were made but TZL continued to pay rent. All payments were returned promptly save for £5,000 in March 2021, which was returned eight months later, and £3,750 in September 2022, which was returned two months later. TZL argued that LBH had waived its right to forfeit and, in proceedings funded by Canmoor, sought a declaration as to the position and, alternatively, relief from forfeiture. Right to forfeit LBH conceded that its acceptance of rent after 2014 had waived its right of forfeiture in respect of TZL’s failure to construct the zoo building by March 2014 since this was a “once and for all” breach. Instead, it relied on TZL’s failure to comply with the clause 9 lease notice as a separate and free-standing breach giving rise to a separate right of forfeiture. The court agreed. Such an interpretation was the only one consistent with the plain and natural wording of the clause and its contractual and commercial context (Jervis v Harris). Waiver Waiver of a right to forfeit requires the landlord to know the facts giving rise to a right of forfeiture and then to do some equivocal act that affirms the continuation of the lease. TZL was informed when Avison Young was appointed that the firm performed a treasury function – demanding and collecting rent – and there was nothing to suggest it had actual or ostensible authority to make commercial decisions about the lease on behalf of LBH. The March 2021 payments were rejected immediately, but sent to the wrong account due to banking error and only corrected months later. Return of the September 2022 payment was delayed due to clerical errors, but by that time LBH’s position was clear: it had filed its defence in the proceedings. TZL’s continuing remittal of rent payments was purely a tactic, to engineer a situation of waiver. The payments were not accepted by LBH and so did not give rise to waiver. Relief from forfeiture The exercise of the court’s discretion under section 146(2) of the Law of Property Act 1925, to grant or refuse relief from forfeiture as it thinks fit having regard to all the circumstances, is circumscribed by established principle. Forfeiture is a security for performance of the tenant’s covenants, so generally tenants are relieved from forfeiture if they remedy the breach and pay the landlord’s costs. The construction of the zoo building was a fundamental basis on which the lease was granted. The court was not persuaded that TZL, which was balance-sheet-insolvent, would be able to build the zoo if its construction was ordered as a condition of relief. Canmoor’s late agreement to unconditionally fund construction was largely unsupported with no evidence of funding sources. The real value in the lease lay with Canmoor under the option. While the court should be astute to guard against a disproportionate loss to the tenant, it was not required to protect the interests of third parties seeking to bargain with the landlord for development rights over the site. Louise Clark is a property law consultant and mediator Photo © Joakim Honkasalo/Unsplash