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No surrender- Not an article about Brexit

30th October 2019

No surrender- Not an article about Brexit

Surrender by operation of law is difficult to establish, but in an interesting case involving the Landlord changing the locks and holding onto the keys, the lease was still held, not to have been surrendered.

Ever since landowners have allowed their land to be used by others in return for a fee, tenants have defaulted on the payment of the fee and been pursued for arrears. Irritatingly, for a tenant, there is not much that can be done to avoid liability; after all a lease or licence is much like any other contract, you enter into in at your peril if you don’t comply with the fundamental terms.

One such way in which tenants have been able to terminate early is by surrendering the lease. Obviously a surrender by deed is the most straightforward as this is an agreement between the parties to bring the relationship to an early termination. But if, as is the more common situation, a landlord will not agree to a surrender, tenants have often sought to return keys in the hope that the landlord accepts thus creating a surrender by operation of law. The difficulty is that an act of surrender by a tenant is not, in all likelihood going to be accepted by a landlord.

What then amounts to a surrender by operation of law? The answer of course depends on the facts and the keys being handed back must form 9 out of 10 attempted surrenders. However, what happens if the reverse takes place and it is the landlord that has changed the locks and been in control of access to the premises.

In a recent case, just that scenario had taken place.

A 10 year lease, included a tenant’s break upon the giving of 6 months notice. The tenant, exercising the break clause, lawfully terminated the lease on 30 March effective 6 months later on 30 September. At that time the landlord indicated that if it could find a tenant to take the premises, prior to 30 September it would do so, but no promises were made. The tenant began to vacate, spending less time in the premises and more time at its alternative premises. In furtherance of its ultimate desire to re-let, the landlord frequently and at times inconveniently sought access for various reasons associated with a potential sub-letting. By way of example, access was required by a structural engineer to see whether it was possible to knock down some internal walls and a lighting engineer, so as to improve lighting within the premises.

After a time, the tenant, who had substantially re-located, was finding these constant demands to be available to provide access, inconvenient and began to make it more difficult for access to be provided. Rather than seeking injunctive relief to enable it to gain access under the access provisions in the lease, the landlord instructed a contractor to change the locks. On changing the locks, the landlord made it very clear that the act of changing the locks was not intended to forfeit or effect a surrender of the lease and that possession was not being re-taken. The tenant, who was keen to bring the lease to an even earlier end, needless to say argued to the contrary.

What was said by the tenant was that the purpose of the lock changing had nothing to do with ensuring the security of the premises or carrying out repair works, which would otherwise been the tenants responsibility under the lease, but all to do with creating new premises for a new tenant.

In argument the tenant referred to the judgment of the Court of Appeal in Artworld Financial Corporation v Safaryan & Others [2009] EWCA Civ 303 in which their Lordships and Lord Justice Dyson in particular confirmed the accuracy of the 8 propositions identified by the judge at first instance from the authorities was correct.

Those propositions are as follows:

(1) The issue of whether there has been a surrender by operation of law after a tenant’s abandonment of the leased premises must be determined by evaluating the effect of the landlord’s conduct as a whole;

(2) The test is whether the landlord’s conduct is ‘so’ inconsistent (Oastler v Henderson [1877] 2 QBD 575 at 577) with the continuation of the tenant’s lease that it could only be justified as being lawful on the basis that the landlord has accepted the tenant’s implied offer to give back possession, and has taken possession of the premises beneficially for himself;

(3) Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them;

(4) Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing;

(5) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord’s interest in the value of his property, is a reasonable response to the tenant’s evinced intention not to perform the obligations of the tenancy:

(6) Similarly, any act of the landlord which amounts to the landlord’s performing the tenant’s covenants under the lease, such as keeping the garden tidy, would not necessarily amount to a resumption of possession as it is not inconsistent with holding the defaulting tenant to performing the lease;

(7) Any further act of the landlord referable to the landlord’s seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties: Oastler v Henderson (above). The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant’s abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so;

(8) However, if the landlord goes further and uses the premises for his own benefit beyond the totally trivial and certainly, in my judgment, if such use amounts to occupation of the premises, then he retakes possession of the premises inconsistently with the continuance of the lease. This will give rise to a surrender by operation of law, since it is only on the basis of having accepted such a surrender that the landlord’s acts would be lawful.

Dyson LJ went on to observe in paragraph 31 as follows:

“What the judge was saying was that a landlord who goes beyond the sort of acts referred to in propositions (3) to (7) and uses the premises for his own benefit and, a fortiori, a landlord who goes into occupation of the premises for his own benefit, is ordinarily to be treated as having retaken possession. This accords with the distinction drawn by Wills J in Phene v Popplewell between “acts done in the exercise of ownership” and “mere gratuitous acts done for the benefit of the tenant”

In the case discussed above the judge found against the tenant because although the acts were acts intended to assist with the granting of a new lease to a new tenant, which would obviously benefit the landlord, the benefit would also be enjoyed by the tenant, whose liability until the termination date would otherwise have continued.

The decision correctly recognised that not every instance of use of the premises by the landlord for its own benefit will necessarily amount to a re-taking of possession, even where the use goes beyond the sort of acts referred to in the propositions (3) to (7). The use which is too trivial will not suffice is resulting in a surrender by operation of law being found.

Surrender is a very useful mechanism to early termination of liability under a lease, but based on the numbers alone; four propositions against one, the chances are that only the most clear and unequivocal acts will result in a surrender by operation of law.

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Sally Wollaston
Sally Wollaston
Business Development and Marketing Director
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