Appellant being surety to lease — Lease disclaimed pursuant to section 178 of Insolvency Act 1986 — Particulars of sale describing property as “vacant” — Whether appellant liable for rent after lease disclaimed — Whether description of property as “vacant” amounting to re-entry so as to determine lease — Appeal dismissed
In 1996, a third-party landlord demised premises to a company under the control of the appellant. Clause 8 of the lease contained surety covenants, whereby if the lease were forfeited, the appellant would either take up the lease or be responsible for rents owed. In 2000, the company went into liquidation and the liquidator disclaimed the lease pursuant to section 178 of the Insolvency Act 1986. The landlord did not exercise its clause 8 rights.
The property was subsequently included in a portfolio of properties for sale, in which it was described as being “vacant”, although a further note alerted the purchaser to the fact that it could require the surety to accept a new lease.
The issues before the court were: (i) given the provisions of section 178, was the appellant potentially liable as surety for rent instalments that would have fallen due within the six-month period immediately following the disclaimer of the lease; (ii) if so, were either of the respondents entitled to enforce the covenant of suretyship; and (iii) had the respondents or their predecessors in title effectively re-entered, thereby ending the surety obligations?
The master gave summary judgment in favour of the first respondent on the basis that the appellant had no realistic prospect of establishing a forfeiture by re-entry.
Held: The appeal was dismissed.
1. In general terms, once a lease had ended, no further rent could become due. It would be a contradiction in terms for rent to accrue for a period following the expiry of the lease. However, the 1986 Act clearly envisaged that a person might be liable to perform the tenant’s covenants even after the lease had been disclaimed: see Hindcastle Ltd v Barbara Attenborough Associates Ltd [1996] 1 EGLR 94. Upon disclaimer, the lease was determined and the reversion accelerated, but not so as to affect the rights or liabilities of others, such as guarantors and original tenants, who were to remain as though the lease had continued. In the instant case, the master had correctly found that the reversion to the disclaimed lease was to be regarded as continuing in a notional sense, “like the Cheshire Cat’s grin”, despite the termination of the lease.
2. Since the “dead lease” was deemed to subsist so far as the landlord and surety were concerned, a “notional reversion” was therefore capable of being assigned, with the benefit of the annexed covenant, as if the lease had not been disclaimed. In any event, the note alerting the purchaser to the fact that it could require the surety to accept a new lease was a special condition that operated either expressly or as a matter of necessary implication to assign the benefit of clause 8 of the lease to the first respondent.
3. The description of the unit as “vacant” in the particulars of sale was not capable of amounting to a re-entry for the purposes of determining the lease, and no other evidence to support that contention had been adduced before the master. On that basis, the appeal was dismissed.
Hugh Jackson (instructed by Needleman Treon) appeared for the appellant; Nicholas Caddick (instructed by Trowers & Harnlins) appeared for the respondents.
Vivienne Lane, barrister
