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Who surrenders?

The recent case of Padwick Properties Ltd v Punj Lloyd Ltd [2016] EWHC 502 (Ch) sets out some clear dos and don’ts for a landlord faced with a tenant who seeks to surrender a lease.

A surrender by operation of law takes place when the tenant makes clear its intention to surrender all interest in the property and the landlord unequivocally accepts such a surrender.  The most common example is where the tenant hands back the keys to the property and the landlord accepts them. 

In this case the tenant entered into administration and the assets were assigned to a group company who also took a licence to occupy the property. The guarantor, Punj Lloyd Ltd was the parent company of both the original tenant and the licensee.  The licensee entered into occupation on 8 July 2011 and in September 2011 vacated the premises.  The original tenant sent back the keys and also paid an amount of insurance rent calculated to cover the period up to the date the licensee vacated.

It was clear from its actions that the tenant intended to surrender all rights of occupation.  The landlord however refused to accept the keys and the cheque and continued to invoice for the rent and insurance rent as they fell due.  The property stood empty and started to be used by local youths as a hang out.  Several ground floor windows were broken. As a result, and driven by the insurers, the landlord changed some of the locks and also put in place further security including at one point a 24 hour security presence.  The landlord also advertised the property as available for let, did not find a new tenant, and after taking legal advice took it off the market.

In 2013, the tenant went into liquidation and under the terms of the lease (which of course the landlord considered to be ongoing) the landlord was entitled to require the guarantor to take an assignment of the lease.  The landlord did this and also demanded payment of all arrears from the guarantor.  This crystallised matters and in May 2014 proceedings were issued for the unpaid rent, insurance and costs as well as an order for specific performance requiring Punj, the parent company to take a new lease.

The tenant argued that the landlord had received the keys, changed the locks, put in place security for the premises and even advertised it as available for rent.  All of these, they argued, showed that the landlord accepted that the lease had terminated. Many would consider the tenant right, and the various factors taken on their own seem to indicate the landlord accepting the tenant’s interest had terminated.

However, what cannot be ignored was what the landlord was saying while doing these things.  Throughout, the landlord maintained that the lease was ongoing.  The keys were expressly stated as being held but not accepted as a surrender (as is often done to avoid the keys spending forever in the mail between landlord and tenant).  In all communications with the tenant, the landlord told the tenant it considered the lease to be ongoing.

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