Padwick Properties Limited v Punj Lloyd Limited  EWHC 502 (Ch)
The High court gave judgment for £4 million against the guarantor of a lease and made an order for specific performance for its obligation to take a new lease.
The defendants claimed that the lease had been surrendered by operation of law.
The tenant went into administration, the guarantor was given notice to take the new lease, but claimed no further responsibility due to the alleged surrender.
Previously, after they had vacated the premises, the administrators had returned the keys and offered a surrender to the landlord; the well-known ’jingle mail’ tactic. The landlord secured the premises and eventually even marketed it.
It was held that the landlord’s actions did not amount to an acceptance that the lease was at an end. The court examined the behaviour of the administrators and the landlord and decided that the lease was not surrendered; the landlord was protecting its interests in the property and had told the administrators what action it was taking.
It was held that the conduct of the parties must unequivocally amount to an acceptance that the tenancy has ended. The court analysed the landlord’s conduct and concluded that none of the landlord’s actions (the changing of the locks, the ‘acceptance’ of the keys and the extra security engaged) amounted to a surrender. The court evaluated the effect of the landlord’s conduct as a whole to come to this conclusion.
- This case highlights the importance of needing an accurate paper trail and attendance notes. It was discovered that the letter returning the keys was not responded to, but that there had been telephone conversations regarding an attempted surrender by the administrators.
- Landlords should exercise caution when dealing with returned keys and note that the action they take after a set of keys is returned will have consequences. If it is clear how and on what terms a set of keys is being accepted, this will stop any arguments to the contrary. This is particularly important when there may be a query as to whether or not a guarantor is ‘off the hook’ as in this case.