Landlord entering into non-binding agreement for surrender of lease at a reverse premium – Formal documents in course of preparation – Defendant managing agent arranging for return of keys – Tenant claiming that tenancy surrendered by operation of law – Solicitor advising landlord to acknowledge surrender – Landlord failing to recover premium – Whether agent and/or solicitor negligent
The claimant was the owner of Arndale Shopping Centre, Wandsworth, in which connection it had engaged the first defendant, a firm of surveyors, as managing agents, and the second defendant as its solicitors. One of the shops was let by the claimant to Budget Books (Budget) for a term expiring in 2007. Having failed to trade successfully, and prompted by its guarantors, Budget approached the claimant with a view to negotiating a surrender of its lease. On 5 January 1996 a non-binding agreement was reached for the surrender of the lease for a reverse premium of £100,000, the agreement being subject to the execution of formal documents to be settled by the parties’ solicitors. At a meeting held on 13 January 1997 the claimant explained to representatives of both defendants that it wished to obtain possession by 19 January, so that work could start as soon as possible for the conversion of the shop into five kiosks to be offered to small traders. It was indicated that formal documentation would not be ready before the end of the month. On 16 January H, a member of the claimant’s staff acting at the direction of a senior member of the first defendant, came to an arrangement with the Budget store manager, M, who was anxious to keep the shop open until close of business on 20 January.
On 20 January, and pursuant to the arrangement, M handed the keys of the shop to H. M also handed over Budget’s copy of the lease. H countersigned a brief note prepared by M and handed to M a receipt that also recorded the final readings shown on the gas and electricity meters. On 23 January Budget’s solicitors declined to proceed further with the formal documentation, having taken the view that the events of 20 January amounted to a surrender by operation of law. Having conferred with counsel, the second defendant formed the view that, rather than insisting that the lease was still on foot (a course of action that would inevitably delay the intended conversion), the claimant was better advised to accept the alleged surrender and try to recover the promised £100,000 from Budget. Letters to that effect were sent to Budget, which refused to pay the premium. Subsequent proceedings against Budget were settled on terms that limited the claimant’s entitlement to arrears of rent and other sums due under the lease. The claimant then took proceedings for professional negligence against the first defendant, which claimed that it had correctly observed the claimant’s instructions and that, in any event, the true cause of the loss was the action taken by the second defendant which, so it was maintained, had proceeded upon an erroneous assessment of the legal effects of the events of 20 January 1997. The latter argument made it necessary to join the second defendant.
Held: The first defendant alone was liable.
1. It was clear on the evidence that, but for the events of 20 January, Budget would have proceeded with a formal surrender and would have paid the agreed £100,000.
2. Although the acceptance of the keys was not conclusive on the issue of surrender (see Proudreed Ltd v Microgen Holdings plc [1996] 1 EGLR 89) the second defendant was not wrong in concluding that Budget had a strong chance of establishing that the conduct of the claimant (in the person of H) was consistent only with the termination of the lease, and accordingly capable of giving rise to an estoppel, and hence a surrender by operation of law. Given the predicament in which its client was placed, the action taken by the second defendant, which correctly saw its task as one of damage limitation, lay well within the range of conduct open to a reasonable solicitor in the circumstances.
3. The loss sustained by the claimant was accordingly solely attributable to the negligence of the first defendant, the court being satisfied, both on evidence received of professional practice and as a matter of principle, that it was a breach of duty on the part of the managing agent, knowing that the surrender had not been formalised, to arrange for the return of the keys without first checking with the client’s solicitor
Stephen Jourdan (instructed by Collyer-Bristow) appeared for the claimant; Timothy Harry (instructed by Williams Davies Meltzer) appeared for the first defendant; Timothy Dutton (instructed by Lovell White Durrant) appeared for the second defendant.
Alan Cooklin, barrister
