Allyson Colby explains why a landlord’s actions in respect of vacant property did not constitute acceptance of surrender of a lease
Key points
- Accepting the keys to premises will not necessarily signify acceptance of an offer to surrender a lease
- The landlord must act in a way that makes it clear that the lease has ended
- The court can take into account what a landlord says, as well as what it does, in order to interpret actions that might otherwise be equivocal
The surrender of a lease may be implied from the conduct of the parties. If the landlord and tenant have acted unequivocally in a manner that is inconsistent with the continuation of a tenancy, the parties will be treated as having effected a surrender by operation of law. Abandonment of a property will not suffice. The tenant must convince the court that the lease has terminated. Therefore, the court must be satisfied that the landlord’s conduct can be justified as being lawful only on the basis that the landlord has accepted the tenant’s express or implied offer to give back possession and has taken possession of the premises beneficially for itself.
These requirements set the bar high. However, the court will consider the effect of the landlord’s conduct as a whole when deciding whether there has been a surrender.
A case in point
In Padwick Properties Ltd v Punj Lloyd Ltd [2016] EWHC 502 (Ch); [2016] PLSCS 81, the court was asked whether a landlord had accepted a surrender of a lease from a company that had gone into administration. Following the expiry of a short-term licence to occupy in favour of a connected company, during which the connected company had paid the rent due under the lease, the administrators wrote to the landlord’s solicitors stating that the tenant had vacated the property and asserting that “the security and safety of the property will revert to your client”.
Some weeks later, the administrators returned the keys. In due course, the company went into liquidation and the liquidators disclaimed the lease. The landlord served notice on the company’s guarantor demanding sums due under the disclaimed lease and requiring the guarantor to enter into a new lease. The guarantor replied that the lease had been surrendered by operation of law. The landlord had accepted the keys, boarded up the property and marketed it for sale with vacant possession, which, the guarantor claimed, put paid to liability under its guarantee.
Landlord’s actions
The landlord explained that it had accepted the keys to the property because the administrators had threatened to throw them away. It stated that its solicitors had telephoned the administrators to confirm that the keys were being held for safe-keeping, and for no other reason. It accepted that it had advertised the property for sale on a long leasehold basis one year after it fell vacant. However, it had been withdrawn from sale a few weeks later to avoid jeopardising the guarantee.
Meanwhile, youths had been congregating at the back of the property and ground-floor windows had been smashed. Around-the-clock security was costing the landlord about £2,000 a week. So it boarded up the lower-floor windows, changed some locks, and installed alarms to comply with its insurer’s requirements.
The landlord drew the court’s attention to the fact that it had written to the administrators rejecting the suggestion that they could divest the tenant and guarantor of liability under the lease by vacating the property. It had also made it clear to the guarantor, on more than one occasion, that it considered that the lease continued to subsist.
The law
In Artworld Financial Corporation v Safaryan and others [2009] EWCA Civ 303; [2009] 2 EGLR 27, the court said that accepting the keys to premises will, in itself, always be equivocal. Someone has to hold the keys to prevent them being passed backwards and forwards because neither party wants to risk it being suggested that it has made an admission by holding on to them.
Furthermore, actions of a landlord that are consistent with its rights under the lease, such as inspecting or repairing, will not, of themselves, be fatal to the continuation of the lease. Nor will actions to protect or preserve the value of, or even to re-let, property, since these are actions that a landlord might be expected to take in order to protect its own interests.
No resumption of possession
The judge ruled that the lease would have determined had the landlord taken possession of the premises or re-let them. However, this had not happened here. The landlord had accepted the keys because there had been no alternative and had informed the administrators why it was doing so.
It was not necessary to find provisions in the lease to justify the landlord’s conduct. Landlords whose tenants abscond are entitled to protect the security of their premises, maintain their rights against their tenant until a fresh one is found, and then to forfeit.
The landlord had not changed the locks to exclude the tenant or so that it could use the property itself. Its actions, and the security measures that it had taken, had been a reasonable response to the abandonment of the premises and were necessary to protect the property and to preserve the value of the landlord’s interest, as well as the interests of the tenant and guarantor.
Finally, attempting to re-let did not give rise to an estoppel, even though the property was advertised with vacant possession. The landlord could have taken possession whenever it wanted, but had chosen not to do so. Its behaviour had not been inconsistent with the continuation of the tenancy and the lease had not been surrendered. Consequently, the landlord was entitled to recover arrears of rent and other sums in the sum of £4m and to an order for specific performance requiring the guarantor to take a new lease.
Allyson Colby is a property law consultant
