Lease – Assignment — Surrender by operation of law – Receivers of lessee purporting to assign lease to appellant – Respondent landlords obtaining possession of property — Whether lessee’s conduct amounting to unequivocal acts demonstrating that lease ended — Whether appellant occupying property as tenant at will – Whether predecessor surrendering property by operation of law — Appeal allowed
By a lease dated 31 August 2001, the respondents demised a builders’ yard to a company (LDC) that carried on demolition and scaffolding businesses from the property. Joint administrative receivers were appointed over LDC on 26 January 2006, prior to which the appellant had been formed with a view to a possible takeover of the scaffolding business. Negotiations between the respondents and the appellant considered the possibility of the appellant being granted a new lease of the property to the appellant but none was granted. However, following the appellants approach to the receivers of LDC, the latter executed a deed purporting to assign a lease to the appellant.
The respondents claimed possession of the property from the appellant on the basis of surrender by operation of law; the appellant had been in occupation of the premises during the negotiations as a tenant at will, and such tenancy had been determined by the respondents so that they were entitled to possession. The appellant argued that the lease had not been surrendered and that it had a valid assignment.
The county court found that the lease had been surrendered by operation of law and made an order for possession. The appellant appealed.
Held: The appeal was allowed.
The lease had not been surrendered by operation of law since LDC had not acted in a way that was unequivocally inconsistent with the continuance of the lease or that justified the conclusion that the lease had been impliedly surrendered.
There was no legal distinction between a surrender by operation of law and an implied surrender. The term “surrender by operation of law” applied where a landlord or a tenant had been a party to some act, the validity of which it was estopped from disputing and which would not be valid if the tenancy had continued to exist. The principle did not depend on the parties’ subjective intentions but on estoppel; there was no estoppel by mere verbal agreement. It required an additional act that was inconsistent with the continuance of the tenancy. The surrender was treated as having taken place immediately before the act to which the landlord or the tenant was a party. The conduct of the parties had to amount unequivocally to an acceptance that the tenancy had ended, which was a high threshold. It was also necessary to show either a relinquishment of possession and its acceptance by the landlord or other conduct consistent only with the cesser of the tenancy. The circumstances had to be such as to render it inequitable for the landlord or the tenant to dispute that the tenancy had ended: Proudreed Ltd v Microgen Holdings plc [1996] 1 EGLR 89; [1996] 12 EG 127, Bellcourt Estates Ltd v Adesina [2005] EWCA Civ 208; [2005] 2 EGLR 33; [2005] 18 EG 33 and Artworld Financial Corporation v Safaryan [2009] EWCA Civ 303; [2009] 2 EGLR 27; [2009] 23 EG 94 considered.
In the instant case, the only act that was alleged to have taken place to which LDC was said to be a party or gave its consent was the alleged grant of a tenancy at will to the appellant. Accordingly, the parties had never reached the point immediately before the grant of a new lease when the question of an implied surrender might have arisen. At all relevant times, the respondents and the appellant were only negotiating, even though they had agreed on the rent and the essential terms of the proposed lease. The established general proposition that there might be an implied surrender immediately before the grant of a new lease indicated that the normal position was that standing by on the part of an original tenant, while the landlord negotiated a new lease with a prospective new tenant, even one that was in occupation of the property, would not give rise to an implied surrender.
LDC had not therefore assented to the grant of a tenancy at will. Further, the evidence did not support the conclusion that the receivers knew of and had consented to the grant. Accordingly, LDC had not acted inconsistently with the continuance of the lease. It followed that there was no surrender by operation of law.
If the lease remained in being, it was vested in the appellant by reason of the deed of assignment. However, the pleadings had raised an issue as to whether the assignment of the lease was a breach of the covenants against assignment save in certain specified circumstances. Since that point had not been investigated at the trial or on appeal, any declaration to the effect that the lease had been vested in the appellant had to make it clear that there had not been a determination of whether the assignment was, or was not, in breach of the lease.
Tim Calland (instructed by Collyer Bristow LLP) appeared for the appellant; Adam Rosenthal (instructed by IBB Solicitors) appeared for the respondents.
Eileen O’Grady, barrister
