Allyson Colby considers when variation of a lease operates as a surrender and re-grant
Key points
- Entries on the register stating that a lease has been varied may be reinterpreted to mean that the variation has effected a surrender and re-grant
- But the court will respect a clear intention to continue an existing lease as varied, unless the only way in which the variation can be effected is by surrender and re-grant
If a tenant accepts a new lease of the same land from his landlord, he is taken to have surrendered his original lease immediately before he accepts the new one. This surrender, by operation of law, takes effect irrespective of the parties’ intentions. Other variations may have a similar effect, even if there is no express grant of a new lease, if the arrangements between the parties are sustainable only because they have created a new tenancy. This may not be good news for one, or both, parties.
Effect on landlords
A variation that operates as a “surrender and re-grant” transforms an “old” lease into a “new” lease for the purposes of the Landlord and Tenant (Covenants) Act 1995. This will release any former tenants and guarantors who might otherwise have remained liable under the lease until it expired.
The surrender and re-grant will also release any current guarantors, unless they are parties to the arrangement, and guarantors under any authorised guarantee agreements as well. There may also be implications for obligations to repair and reinstate at the end of the lease and for rent deposits, too. Furthermore, tenants whose original leases were contracted-out of Part II of the Landlord and Tenant Act 1954 may obtain security of tenure instead.
Effect on tenants
There may be repercussions for tenants, too. Until recently, those advising tenants might have focused on stamp duty land tax and Land Registry fees in connection with the new lease. However, Stevens and another v Ismail [2016] UKUT 43 (LC); [2016] PLSCS 47 reveals that there may be other consequences, too.
The claimants sought to modify covenants in leases of two flats in order to create a single maisonette. On the face of it, there should have been no difficulty with their application. The leases were granted on 5 April 1980 for 999-year terms and section 84(12) of the Law of Property Act 1925 enables a tribunal to modify or discharge covenants restricting the use of leasehold land where the term created by a lease was more than 40 years and 25 years of that term have expired.
However, the claimants faced an objection from another flat owner on the ground that there had been a surrender and re-grant of one of the claimants’ leases less than 25 years previously. The objector argued that this deprived the tribunal of jurisdiction because section 84(12) does not include any saving provisions that keep the clock ticking where a lease has been surrendered and re-granted.
Variations
The lease had been varied in 1998, when the landlord had granted the claimants’ predecessors in title vehicular rights of way to and from the highway, together with an exclusive right to park in an area shown on the plan attached to the deed of variation. The deed stated that “save as hereby varied, the covenants and conditions contained in the registered lease shall continue in full force and effect”.
The grant of a lease creates a legal estate in a specific parcel of land for a defined term and it is well established that variations that increase the length of, or the area demised by, a lease will take effect as a surrender and re-grant: see Friends Provident Life Office v British Railways Board [1995] 2 EGLR 55. There are those who believe that varying easements in a lease may do so too, but the judge did not query or doubt the parties’ agreement that the creation of new rights had not effected a surrender and re-grant.
The problem arose because the flat, which adjoined the garden, had been extended, over time, by the construction of a kitchen and conservatory on land that was not included in the demise. The objector claimed that the inclusion of these new areas within the red edging on the plan attached to the deed of variation signified that the area demised by the lease had been enlarged, thereby triggering a surrender and re-grant.
Decision on jurisdiction
The tribunal dismissed the claimants’ argument that the entries on the registers of title kept by the Land Registry were conclusive. They referred to the original lease, as varied, but the judge made it clear that he would have read the entries as if the variation had effected a surrender and re-grant, had it been necessary to do so.
Fortunately for the claimants, the judge accepted their argument that the use of an up-to-date plan in the deed of variation was insufficient, in itself, to operate as a demise of the areas that were not included on the original lease plan (even though the parties had agreed to substitute the new plan for the original).
The parties had had a single purpose – to grant an additional right to park on the area shown on the new plan – and had assumed that the extensions were already part of the premises comprised in the lease. The plan was described as being “for identification only” and the deed of variation did not contain any words of demise, or purport to fix or alter the boundaries of the flat. Furthermore, the parties had specifically stated that the original lease was to continue in full force and effect.
Therefore, the demised premises were still legally those demised in 1980. This meant more than 25 years of the term had elapsed and the tribunal did have jurisdiction to deal with the application. Whether the tribunal should modify the leases remains to be considered.
Allyson Colby is a property law consultant
