Surrender by operation of law

A lease can determine early by either an express agreement to surrender (usually recorded in a formal deed) or by operation of law. In the latter circumstance, a deed is not required in order for the lease to come to an early end and in some circumstances a surrender can occur due to the conduct of the parties despite their intentions to the contrary. It is therefore vital for landlords to ensure that they do not act in such a way that could be interpreted as accepting a surrender of a lease. This article looks at a recent case, Artworld Financial Corporation v Safaryan & Ors, and its implications for landlords and tenants in this regard. Whilst the case concerned residential property, it also applies to commercial property.

The case

Artworld owned a large house, which it let to the Safaryan family for three years at a rent of £390k per year. The Safaryans were not happy with the property due to various technical problems and vacated the property with 15 months remaining of the term. They returned the keys to the landlord. The landlord sought to claim unpaid rent. The Safaryans’ argued that the tenancy had come to an end by a surrender by operation of law and relied upon the following facts:

  • the landlord accepted the keys back
  • the landlord obtained a ‘checkout’ report and inventory
  • the landlord carried out redecoration works
  • furniture was returned to the property that the tenant did not want at the start of the term so had been placed into storage
  • the landlord used the driveway to park cars
  • members of the landlord’s family moved into, slept and stayed at the property - not as caretakers
  • the landlord kept the garden tidy
  • the landlord re-hung the curtains, which had been removed at the tenant’s request  

Despite the above actions, Artworld made it clear through a series of letters issued by their solicitor that they regarded the lease as continuing and had no intention of accepting a surrender. They argued that the above actions where legitimate as they were entitled to carry them out under the terms of the tenancy and/or were protecting/preserving the property.

The Court of Appeal decision

The court did not agree with Artworld and declared that, whilst many of the actions listed above may, looked at individually, be consistent with a continuing lease, the totality of the actions lead to the conclusion that the landlord took back possession and there was an implied surrender.

Analysis

The case does not prevent landlords from protecting or preserving their property when faced with an absent tenant. Provided the landlord is properly exercising their rights under the lease or is acting in such a way as to mitigate any loss from an absent tenant, then an implied surrender is unlikely. Equally a landlord can seek to market the property, despite a continuing tenancy, in anticipation of perhaps entering into a formal surrender with the absent tenant or the tenant becoming insolvent. In short, if a landlord goes over and above their rights in the lease and effectively re-takes possession eg by occupying it themselves, by keeping the tenant out (by changing the locks) or letting the property to a new tenant - then such actions will amount to a surrender. As the Artworld case shows, when a landlord is looking to do more than they are entitled to do under the tenancy, then it is best to seek advice to protect their position. It is also not enough to put your intentions in writing to the tenant as actions are more powerful than words.