The Landlord and Tenant Act 1954 contains safeguards to protect business tenants from agreeing to relinquish security of tenure without appreciating the consequences of their actions. Landlords and tenants must therefore follow statutory procedures before a tenant agrees to surrender a business lease, failing which the tenant will continue to have security of tenure under the 1954 Act.
The law is framed in such a way that landlords can accept an immediate surrender of a business tenancy. A surrender that is not preceded by an agreement to surrender is valid. If however, parties choose to enter into the agreement whereby the lease will be surrendered at a future date, the landlord must first serve a notice in a prescribed form on the tenant explaining that the tenant is agreeing to relinquish statutory renewal rights. The tenant must then swear a declaration that it has received the notice. A subsequent agreement to surrender the lease will bind the tenant.
The Landlord and Tenant Act 1954 contains safeguards to protect business tenants from agreeing to relinquish security of tenure without appreciating the consequences of their actions. Landlords and tenants must therefore follow statutory procedures before a tenant agrees to surrender a business lease, failing which the tenant will continue to have security of tenure under the 1954 Act.
The law is framed in such a way that landlords can accept an immediate surrender of a business tenancy. A surrender that is not preceded by an agreement to surrender is valid. If however, parties choose to enter into the agreement whereby the lease will be surrendered at a future date, the landlord must first serve a notice in a prescribed form on the tenant explaining that the tenant is agreeing to relinquish statutory renewal rights. The tenant must then swear a declaration that it has received the notice. A subsequent agreement to surrender the lease will bind the tenant.
In Ultimate Leisure Ltd v Tindle [2007] EWCA Civ 1241; [2007] PLSCS 206 the Court of Appeal had to consider the effect of an option agreement that bound a landowner to sell land free from a business lease in favour of a subsidiary company. The tenant was a party to the option agreement, under which it would execute a deed of surrender in favour of its parent company immediately before, and conditionally upon, completion of the sale, in order that the property could be sold with vacant possession.
The buyer exercised the option, but the tenant claimed security of tenure under the 1954 Act. It argued, incontrovertibly, that it was not bound by the agreement to surrender its lease because the seller had omitted to comply with the statutory procedure that would have made the agreement watertight.
The seller claimed that, as a consequence, the option agreement was also invalid. Alternatively, it claimed that completion of the sale of the property was conditional upon the surrender of the lease.
The Court of Appeal found in favour of the buyer. The tenant had promised to surrender its lease to the seller, conditionally upon completion of the sale of the freehold. The seller had made the buyer a separate and unconditional promise to sell with vacant possession on completion. The invalidity of the agreement to surrender did not affect the validity of the option. Consequently, the seller was in breach of contract, and the buyer was entitled to a remedy (to be decided on another day).
Since the tenant is a wholly owned subsidiary of the seller, the seller should be able to obtain a surrender of the lease with vacant possession on completion. None the less, this case demonstrates the importance of complying with the statutory requirements regarding agreements for surrender. Buyers are usually reliant upon the seller for compliance because the legislation authorises only agreements for surrender made between tenants and their landlord. Buyers must therefore review their position carefully, to ensure that all the relevant requirements are satisfied.
Allyson Colby is a property law consultant
