A recent case, has highlighted that a landlord can make arrangements to secure and relet an empty property without bringing about a surrender by operation of law.
Surrender by operation of law has long been a means by which a landlord and tenant can bring a lease to an end, early, and without formality.
A surrender of keys from the tenant to its landlord is often cited as an example of surrender by operation of law but that requires the landlord to accept the keys as an act of surrender. Surrender is a mutual act so where there is no agreement that a surrender has taken place, simply handing back the keys will not be sufficient. A unilateral act alone does not effect surrender.
In Padwick Properties Ltd v. Punj Lloyd Ltd, the tenant went into administration and the administrators handed the keys back to the landlord, stating that security and safety of the property reverted back to it.
The landlord changed the locks and took additional security measures. Then the property was marketed to be re-let with vacant possession.
Later, the tenant went into liquidation and the liquidator disclaimed the lease.
The landlord gave notice to the guarantor of the lease requiring it to enter into a new tenancy as required by its guarantee obligations. At this point the guarantor claimed that the lease had already been surrendered by operation of law and so its obligations had ceased. The landlord maintained that the lease will still in existence.
The court decided in favour of the landlord. There had been no surrender by operation of law. The return of the keys was a unilateral act by the tenant and the landlord's agent had made it clear that no surrender was accepted. The security measures undertaken by the landlord were taken to protect the property. Neither these nor the marketing of the property indicated that possession had been retaken.
What does this tell us?
- If the property had been successfully relet by the landlord then a surrender by operation of law would have occurred.
- Parties should keep a paper trail demonstrating intentions. A key factor in the Padwick Properties decision was a letter from the landlord's agent to the administrators which stated that the acceptance of the keys was for security but not by way of surrender.
- Tenants must be wary about assuming that a lease has been surrendered without confirmation from its landlord to this effect. The decision in Padwick Properties confirms that a landlord is able to take measures to protect its interest without acting in a way that is inconsistent with the continuation of a lease.