Background
Tera Westend Ltd (TWL) held a commercial lease of restaurant premises on Edgware Road, London, granted in 2014 and ultimately held from landlord Edgware Road (2015) Ltd (ERL) after assignments on both sides. TWL stopped paying rent in March 2020 due to the COVID-19 pandemic. In July 2020, ERL made two withdrawals from the rent deposit account funded by TWL’s £107,000 deposit: a permitted £65,000 drawdown applied to quarterly Protected Rent instalments, and a further £43,800 drawn when TWL was not in arrears at all—a withdrawal the County Court found to be plainly unauthorised under the Rent Deposit Deed. The £43,800 was spent by ERL, and ERL gave a false account to the court, both in a statement of truth in its pleading and in witness evidence, asserting the sum remained in the account.
Matters came to a head on 6 May 2022 when ERL re-entered the premises and purported to forfeit the lease, relying on alleged arrears of £32,500 Non-Protected Rent (said to fall due on 25 March 2022) and a £1,071.89 service charge instalment. TWL contested the forfeiture and claimed damages for lost profits. At trial in the County Court, HHJ Monty KC made damaging findings against both sides. TWL’s lost profits claim was found to be dishonest: TWL was a dormant shell company and it was a related entity, WLR, that operated the restaurant and earned the profits; Mr El Gibaly had prepared fabricated accounts to make TWL appear profitable. TWL discontinued that claim during trial. Against ERL, the judge found that the wrongful £43,800 withdrawal more than offset any arrears of rent or service charge as at 6 May 2022, with the result that there were no qualifying arrears and the purported forfeiture was of no effect. Obiter, the judge stated he would have refused TWL relief from forfeiture given TWL’s dishonest conduct.
ERL appealed to the High Court with the permission of Marcus Smith J. TWL filed a Respondent’s Notice defending the no-arrears finding on additional grounds and challenging the obiter refusal of relief from forfeiture. Following the main hearing in February 2026, Mr Justice Richards issued post-hearing questions prompting both parties to apply to amend their respective cases; further argument was heard on 29 May 2026.
The Court’s Holding
The central question on ERL’s Ground 1 is how the £43,800 unlawful withdrawal from the Rent Deposit Account falls to be treated as at 6 May 2022. The Rent Deposit Deed provided that no money in the deposit fund is “deemed to be appropriated to or paid towards any sums due to the Landlord” unless formally withdrawn for that purpose (clause 2.4). ERL had withdrawn the £43,800 without any arrears in existence, spent the money, and sought to argue on appeal that it could not, therefore, be credited against any later-accruing arrears. TWL maintained that the wrongful taking of its beneficially owned funds must be set against whatever ERL later claimed to be owed.
A further layer of complexity arose from the Commercial Rent (Coronavirus) Act 2022. Section 2(4) of that Act deems amounts drawn down from a tenancy deposit to meet protected rent debts as unpaid rent, and section 3(6) treats such amounts as protected rent debts for arbitration purposes—enabling an arbitrator to grant the tenant relief from the obligation to top up the deposit. The COVID arbitration award of February 2023 addressed £107,000 of drawdowns as forming part of the protected rent debt, but said nothing expressly about TWL’s top-up obligation. Richards J examines the interplay between the wrongful nature of the £43,800 drawdown (made without any rent arrears in existence) and the 2022 Act’s deeming machinery, which was designed for landlords who permissibly applied deposits against pandemic-era protected rent.
ERL’s Ground 2 challenges the County Court’s finding that the rent cesser clause in the lease—triggered when ERL removed a ventilation duct serving the premises in January 2022—suspended TWL’s obligation to pay the £32,500 quarterly rent due on 25 March 2022, leaving only the £1,071.89 service charge instalment as a potential forfeiture trigger. Additional points in TWL’s Respondent’s Notice contest whether ERL could lawfully forfeit for non-payment of a service charge instalment at all, and whether a demand served by email constituted valid service under the lease’s notice provisions (or, alternatively, whether a course of dealing estopped TWL from denying it).
Key Takeaways
- A landlord who makes an unauthorised withdrawal from a rent deposit account—at a time when no arrears exist—cannot straightforwardly rely on subsequent rent and service charge arrears to justify forfeiture without that earlier wrongful taking being taken into account.
- The Commercial Rent (Coronavirus) Act 2022’s deeming provisions (ss. 2(4) and 3(6)) are designed to ensure parity between tenants whose deposits were drawn down to meet protected rent and those whose deposits were not; they interact complexly with rent deposit deeds and their top-up obligations, and an arbitral award may relieve the tenant from the duty to replenish the deposit.
- A landlord who gives false evidence—whether by verified pleading or witness statement—that withheld funds remain in a deposit account undermines its own case on arrears and will face adverse scrutiny on appeal.
- A tenant’s dishonest conduct in litigation (here, pursuing a lost profits claim for a dormant company with fabricated accounts) may constitute grounds for refusing relief from forfeiture even if the forfeiture itself was otherwise invalid.
- Rent cesser clauses in commercial leases, and the scope of a landlord’s right to forfeit for service charge arrears as distinct from pure rent arrears, remain fertile sources of dispute and were each examined in detail by the appellate court.
Why It Matters
This judgment is significant for landlords and tenants in commercial property disputes, particularly those involving pandemic-era rent arrears, rent deposit deeds, and the 2022 Act’s arbitration machinery. It addresses unresolved questions about whether the 2022 Act’s deeming provisions extend to situations where a landlord’s drawdown was not authorised by the rent deposit deed, and about the extent to which an arbitral award under the Act can modify a tenant’s top-up obligation under a separate contractual instrument. Practitioners advising on the validity of commercial lease forfeitures following the pandemic period will need to consider this analysis carefully.
The case also serves as a sharp reminder of the conduct obligations owed by both landlords and tenants in property litigation. ERL’s false statements about the whereabouts of the £43,800—advanced in a verified pleading and confirmed in witness evidence—proved central to the findings against it. TWL’s fabricated profit claims, though ultimately discontinued, were characterised as dishonest by the trial judge with costs consequences. The judgment underscores that the courts will scrutinise the behaviour of all parties in contested forfeiture proceedings, and that strategic dishonesty on either side carries serious forensic risk.