Most dispositions of leases must be made by deed. However, it is possible to surrender a lease by operation of law. Surrenders by operation of law depend on the parties’ conduct, and not their intentions. The rules are based on the doctrine of estoppel, and will be applied even though the landlord may not have intended to end a lease.
Abandonment of the property will not suffice. A tenant who claims that a lease has been surrendered by operation of law must show that the landlord has accepted the property back. The landlord’s conduct must be unequivocal, and must be inconsistent with the continuation of the lease.
In Padwick Properties Ltd v Punj Lloyd Ltd [2016] EWHC 502 (Ch), 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 a connected company, the administrators wrote to the landlord 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 requiring it to enter into a new lease, and demanded payment of moneys due under the disclaimed lease. The guarantor replied that the lease had been surrendered. The landlord had accepted the keys, boarded up the property and marketed it for sale, which, it claimed, put paid to its liability under its guarantee.
Had the lease been surrendered by operation of law? The judge ruled that is not within a tenant’s power to effect a surrender simply by vacating premises – and that it was up to the tenant to prove that the lease had been determined.
It is open to a landlord whose tenant has absconded to protect the security of its premises, and to maintain its rights for rent against that tenant until a fresh one is found, and then forfeit. Around-the-clock security was costing the landlord approximately £2,000 a week. So the landlord had boarded the lower-floor windows with steel security screens, and had installed alarms. Self-help of this nature was necessary to preserve the landlord’s interest in the property and was a reasonable response to the tenant’s refusal to comply with the lease.
Furthermore, acceptance of keys to premises and attempting to re-let will not necessarily give rise to an estoppel. The administrators had threatened to throw away the keys. The landlord had accepted them for this reason and had stated that it was not accepting a surrender of the lease. Had the landlord taken possession of the premises, or re-let them, the lease would have determined, but this had not happened here.
It is a question of fact in each case whether a landlord has done something that goes beyond protecting its interest in a property. The judge refused to accept that the landlord’s behaviour had been inconsistent with the continuation of the lease in this case, and rejected the guarantor’s argument that the lease had been surrendered.
Allyson Colby is a property law consultant
