Forfeiture Focus: What can we take away from recent case law on forfeiture?

In 2025, forty years will have passed since the Law Commission published its 1985 report calling for the reform of the law on forfeiture. Since then, there have been further consultation papers and Law Commission reports but in the absence of reform, there continues to be a steady stream of case law on the topic. With that in mind, we turn to some helpful reminders that have arisen from this year's cases so far.

The right of re-entry must be clear

A landlord does not automatically have a right to forfeit. Forfeiture will only be available if a proviso for re-entry is included in the lease, but even then, the drafting must be clear.

The court in Tanfield v Meadowbrook Montessori Limited [2024] reminded us that:

• Forfeiture is a penalty and the courts will generally lean against granting forfeiture.
• Where the drafting of the re-entry proviso is unclear, it will be interpreted against the landlord and in favour of the tenant.

The common law rules are best avoided

Linked to the point above, if the right of re-entry is drafted incorrectly, landlords may be stuck with the common law rules which can be tricky to follow.

The vast majority of re-entry rights specify that a landlord may forfeit for rent arrears "whether formally demanded or not" (or words to that effect). The purpose of those words is to dispense with the archaic common law rules.

Those words were missing from the lease in the Meadowbrook Montessori case, which gave the court the opportunity to remind us of the common law rules. Those rules require that, in order to forfeit for rent arrears, a rent demand must be made:

• By the landlord or by the landlord's agent.
• On the very last day before the right to forfeit arises. For example, if the right of re-entry provides for a grace period requiring rent to be paid within 21 days of it falling due, the demand for rent must be made on the twenty first day after the rent fell due (not any earlier or later).
• At a convenient time before sunset.
• At the premises or (if the lease specifies) at the place at which the rent is to be paid.
• For the previous quarter's rent only (if the rent is payable quarterly), not a penny more or less.

Be careful not to waive the right

Even where the lease includes a proviso for re-entry, the landlord's right to forfeit will be lost if the landlord waives the right. Waiver occurs where the landlord, with knowledge of the breach, does some unequivocal act that affirms the continuation of the lease. The tricky point for landlords is that it is quite easy to inadvertently waive the right to forfeit.

One way in which landlords accidentally affirm the continuation of the lease is by accepting payment of rent. The facts of The Tropical Zoo Limited v The Mayor and Burgesses of the London Borough of Hounslow [2024] will be familiar to many landlords in this regard (even if the underlying breach of covenant was somewhat unusual).

In that case, the landlord sought to forfeit the lease in light of the tenant's breach of a covenant to build a zoo. The landlord took steps one would expect of a diligent landlord: it served its section 146 notice and instructed its agents not to demand or accept rent. But the tenant continued to pay rent.

All of the payments were promptly returned to the tenant, apart from three. Two of the payments were not returned promptly because the landlord's bank provided incorrect payor account details and the payments were returned to the wrong account. The third payment was not returned promptly because the employee of the landlord's agent who was instructed to return the monies left the company without making the refund.

It will be a comfort to landlords that the court in this case held that:

• As the landlord's agents had purely "treasury functions" and did not have authority to make any commercial decisions about the lease on behalf of the landlord, the receipt of the payments and failure to promptly return them did not amount to a waiver of the landlord's right to forfeit.
• The acceptance of rent by the landlord is an unequivocal act that will amount to waiver but the assessment of whether the landlord has accepted rent is an objective one, and not based on the subjective understanding of the tenant.
• The payments in this case were not regarded as having been accepted by the landlord, as its agent promptly rejected and did not retain the payments, and the landlord's conduct made clear to the tenant that its rental payments were not being accepted by the landlord.

We await the outcome of the pending appeal to the Court of Appeal.

Landlords face significant liability if they wrongfully forfeit

The landlord in the Meadowbrook Montessori case had not complied with the common law rules referred to earlier in this note.

The tenant ran a school and when the landlord changed the locks and denied access to teachers, pupils and parents, they prevented the tenant from carrying on its business. The landlord in this case is now facing a counter-claim for wrongful forfeiture and could be held liable for:

• The lost school fees.
• The rental value of the premises.
• The value of the contents of the premises, which had either been wrongfully retained or wrongfully sold by the landlord.
• Exemplary damages may also be awarded if the court determines that the landlord’s conduct had been calculated to make a profit exceeding the compensation payable to the tenant.

The risk of wrongful forfeiture can be minimised by forfeiting by court proceedings, rather than by peaceable re-entry, as the tenant remains in occupation pending the outcome of the proceedings.

Conclusion

Forfeiture is a powerful tool in the landlord's armoury but if it's not deployed properly, it can backfire. These cases serve as a helpful reminder to landlords of the importance of seeking advice early when considering whether to forfeit.