The recent increase in tenant insolvency has seen a rise in case law on the issue of surrender of leases. A surrender can be described as the giving up of a leasehold interest by mutual agreement by a tenant to the immediate landlord. The crucial element of surrender is that there must be evidence of an intention on both parties that the term of the lease should immediately cease.
Surrender can take place by operation of law or expressly. Surrender by operation of law relies on interpretation of the conduct of the parties to see whether it shows an acceptance that the lease has ended. There must be relinquishment of possession and its acceptance by the landlord or other conduct consistent only with the end of the tenancy. Expressly by deed is the preferred route as the parties acquiescence to the surrender taking place is clear and unequivocal.
Recent cases have examined whether the surrender of a lease by operation of law has been successful.
In QFS Scaffolding Limited -v- Sable (2010) the tenant was in financial difficulties and, just prior to the appointment of joint administrative receivers, formed two other companies to take over its various businesses. QFS Scaffolding Limited (“QFS”) was set up to take over the scaffolding business which was run from premises owned by Mr and Mrs Sable. QFS entered into negotiations with Mr and Mrs Sable to take a new lease and were in possession of the premises at the time of the negotiations. Mr and Mrs Sable acted on the basis that the original lease had been surrendered by operation of law and regarded the occupation of the premises by QFS pending the conclusion of the new lease as under a tenancy at will. The new lease negotiations were not successful and Mr and Mrs Sable sought to terminate the tenancy at will and regain possession of the premises. Meanwhile, QFS obtained an assignment of the original lease from the administrative receivers of the original tenant and considered that it was therefore the tenant of the premises. The Court had to consider whether the original lease was still in existence or whether it had been surrendered.
In the first instance the judge found in favour of Mr and Mrs Sable and concluded that the original lease had been surrendered by operation of law and made an order for possession of the premises. QFS appealed the decision. The Court of Appeal held that it was wrong to assume the existence of a tenancy at will. The first question should have been whether there had been a surrender of the lease by operation of law. In this instance the receivers of the original tenant had not positively carried out an unequivocal act to surrender the existing lease. They had been aware of the discussions with QFS, but nothing was done to actively surrender the existing lease. Consequently the existing lease continued in full force and Mr and Mrs Sable were not entitled to possession.
In Artworld Financial Corporation -v- Safaryan (2009) the Court reaffirmed that a surrender can occur irrespective of the intention of the parties if there is conduct which evidences surrender. The case involved residential property in West London. Having taken a three year lease in September 2004 the Tenant complained that the landlord did not deal with issues which they had with the heating and the swimming pool and vacated the premises returning the keys to the landlord even though there were 15 months left on the lease. The landlord brought a claim for the rent for the remainder of the term plus interest. The Court held that the landlord’s actions after the keys had been handed over, individually were neutral, but collectively were unequivocal evidence of surrender. In particular the following acts together were held to amount to an acceptance of the surrender by the landlord: (i) the landlord had accepted the keys, (ii) checkout report and inventory had been undertaken (iii) the property had been redecorated to the landlord’s taste (iv) curtains and furniture removed at the tenant’s request had been restored (v) the drive was used for the parking of the landlord’s cars (vi) the garden sheds were removed (vii) the landlord’s son had moved into the property.
The decision in both cases, whilst unfortunate for the landlords, confirmed the existing law and emphasised the need to ensure that there is no ambiguity and unequivocal conduct by both parties which shows an intention that the term of the Lease should immediately cease, for there to be an effective surrender. In practice it is therefore essential to insist upon documenting any surrender to avoid potential problems in the future.