Commercial sellers need to be particularly careful when purporting to sell property with vacant possession. In a recent case, Area Estates Limited v Weir (2010), Area Estates tried to sell a site to Weir, telling Weir that Area’s former tenant had surrendered its lease, so that Area could sell with vacant possession.

What had actually happened is that Area’s tenant had become bankrupt, and so the lease actually became vested in the tenant’s Trustee in Bankruptcy. Although the tenant may have handed the keys back to Area Estates, the tenant did not have the capacity to formally surrender the lease. The lease continued to exist, and if Weir had completed its purchase, it would have bought subject to the Trustee in Bankruptcy’s rights under that lease.

Weir claimed against Area Estates for breach of contract and was successful both at the initial hearing, and when Area appealed.

Particularly in the current economic climate, it is extremely important to check that any surrender of a lease is dealt with properly. As landlord, if your tenant just hands the keys back, you need to check that he is not bankrupt or insolvent. Any future sale or lease can then proceed without the risk of a former tenant else having an interest in the property.