School's out for summer – the perils of unlawful forfeiture

The recent case of Tanfield v Meadowbrook Montessori Limited (2024) is an interesting illustration of how forfeiture of a lease can be unlawful, and includes a useful discussion as to old common law rules around the right to forfeit. Above all, it is a stark warning for landlords as to what can happen if they are too hasty in forfeiting a lease, or do not take appropriate legal advice on their lease wording. 

Facts

The claimant was the landlord of a school run by the defendant company. She claimed the school owed considerable rent under a lease she had granted. She served a statutory demand for the rent and issued a winding up petition against the company. The company defended that petition alleging the rent arrears were disputed. 

As the progress of the claimant's winding up petition was thus held up, she decided instead to forfeit the school lease by peaceable re-entry and enforcement agents changed the locks at the school. As this was during the school term, it caused considerable disruption to the pupils' education. 

The defendant school then sought to further defend the winding up petition on the basis that the forfeiture was unlawful and thus gave rise to a considerable damages counterclaim against the claimant. 

Unlawful forfeiture – common law position

It is probably true that 99.9% of commercial leases provide the landlord with a right to forfeit the lease for unpaid rent "whether formally demanded or not" (or words to that effect). Unusually, the school's lease fell within the 0.1% of leases that did not contain this wording. 

This gave the school the chance to argue that a formal demand for rent was required under common law before forfeiture could be effected . The judgment reminds us of these common law rules on such a demand:

1. The demand must be made by the landlord on the very last day to save the forfeiture, and on no other day;
2. It must be made before sunset at a convenient time;
3. It must be made at the proper place eg where rent is to be paid or upon the land itself, even if the land is vacant;
4. The demand must be of the precise sum due, not one penny more or less;
5. Only the last quarter's rent should be demanded, not previous arrears.

Because these common law requirements had not been complied with at all, the Court concluded the school had a good arguable case that the right to forfeit for rent arrears had not arisen, and thus the claimant's forfeiture was unlawful. 

Quantum of damages claim for unlawful forfeiture

The Court found that the school could arguably make out a case for damages to be paid by the claimant calculated by reference to:

1. Lost school fees for the school terms after forfeiture when school fees were paid in advance
2. Rental value of the school itself
3. Damages for conversion of the school contents which were seized by the claimant and sold
4. Exemplary damages, which are awarded in cases where one party is seeking to gain at the expense of the other party some object that could not otherwise be obtained (in this case possession of the school). 

Conclusion

Given the potential substantial damages claim, the Court dismissed the winding up petition. This left the claimant landlord not only without the leverage to get her rent quickly paid that the petition was designed to achieve, but also facing a substantial damages counterclaim for wrongly shutting the school down. 

As this damages claim essentially arose out of the simple omission from the lease of the words "whether formally demanded or not" in the forfeiture clause, the case is a salutary reminder to all landlords seeking to forfeit to spend five seconds checking these words are in the lease before instructing enforcement agents to change locks.