Where a landlord and tenant bring a lease to an end, they usually do so by completing a deed of surrender.
However, sometimes, it may be implied that a surrender has occurred. The term commonly used for an implied surrender is a surrender “by operation of law”.
In a recent case, QFS Scaffolding v Sable1 , the court considered some of the relevant principles for a surrender by operation of law to take place.
The landlord (Mr and Mrs Sable) granted a lease to a tenant company which eventually entered into administration. Prior to the administration, a new company (QFS) was formed with a view to taking over the tenant’s business.
The Sables negotiated terms for a new lease with QFS who, in fact, went into occupation. However, the negotiations faltered and no new lease was entered into. Instead, QFS asked the administrator of the tenant to assign the lease to it and, as a result of this request, a deed of assignment was executed.
Mr and Mrs Sable claimed possession against QFS. They claimed that a tenancy at will had been granted to QFS during the negotiations for the new lease and this had been with the consent of the tenant. Further, Mr and Mrs Sable claimed to have terminated that tenancy at will, as a result of which they were now entitled to possession. The court initially found in favour of Mr and Mrs Sable and granted an order for possession. QFS challenged that finding in the Court of Appeal.
The appeal court found that, if the lease had been surrendered, the conduct of Mr and Mrs Sable and QFS would have justified the indication of the grant of a tenancy at will (or perhaps, a licence) during the negotiations. Importantly though, the appeal court was not prepared to accept that there had been a surrender of the lease. It was therefore not appropriate to imply the existence of a tenancy at will or licence from Mr and Mrs Sable to QFS. On the basis that the lease had not been surrendered or otherwise determined, the tenant (in administration) was still entitled to possession.
There needed to be unequivocal conduct on behalf of the tenant which would justify the conclusion that the lease had been impliedly surrendered. Here, the tenant had simply stood by while negotiations progressed between the Sables and QFS. On the basis that the lease had not been surrendered, it could not be implied that a tenancy at will between the Sables and QFS had arisen. The tenant had therefore not assented to the granting of a tenancy at will and the lease was now vested in QFS as a result of the deed of assignment.
The general principles relating to surrenders by operation of law can be summarised as follows:-
- No distinction between surrender by operation of law and implied surrender;
- The landlord or tenant has been party to some act, the validity of which he is afterwards estopped from disputing, and which would not be valid if the tenancy continued to exist;
- The subjective intentions of the parties are not relevant;
- There is no estoppel by mere verbal agreement; in addition there must be some act inconsistent with the continuance of the tenancy;
- A surrender is treated as having taken place immediately before the act to which the landlord or tenant is a party;
- The conduct of the parties must unequivocally amount to an acceptance that the tenancy has ended, i.e. either relinquishment of possession and its acceptance by the landlord; or other conduct consistent only with the cesser of the tenancy;
- It must be inequitable for either landlord or tenant to dispute that the tenancy has ended;
- An agreement by either landlord or tenant that the tenancy shall be put an end to, acted upon by the tenant quitting the premises and the landlord taking possession, amounts to a surrender by operation of law; the giving and taking of possession must be unequivocal;
- Where a tenant requests a landlord to let property to a third party, and the landlord does so, the lease is surrendered at the time of the new letting; the surrender does not take place before the time of the new letting; it is essential that the new letting is effected with the consent of the original tenant; if the original tenant does not consent or know of the new tenancy, there is no surrender; but the original tenant’s consent may be inferred from conduct or from long acquiescence in the new arrangements;
- A surrender by operation of law may take place where the landlord, with the original tenant’s consent, accepts the new tenant as his direct tenant; the consent of the landlord and the original tenant is needed.