Commercial Lease Surrender – I Surrender! Or do I?

• Posted onMay 11, 2016

The recent case of Padwick Properties Ltd v Punj Lloyd Ltd is a useful reminder of the traps when dealing with surrender either as a landlord or tenant.

Punj Lloyd Ltd was the guarantor of a lease and the lessee had gone into administration. The lessee had returned the keys and said that the landlord was responsible for the security of the property. They had also enclosed a cheque for insurance calculated pro rata up until the vacation date.

The landlord did not accept the cheque and continued to send formal demands to the guarantor. Later the landlord changed some of the locks, installed additional security and put the property briefly on the letting market.

The lessee later went into liquidation and the lease was disclaimed. The landlord then gave notice requiring the guarantor to enter into a new lease and demanded payment of outstanding monies under the old lease. The guarantor refused and argued that the guaranteed liabilities ended when the lease was surrendered which they argued took place on a number of alternative dates.

The Judge found that the lease had not been surrendered on any of the alternative dates claimed by the guarantor. The landlord had made clear that it did not accept vacation of the property as surrender; and had returned the cheque for the insurance payment and had continued to chase the guarantor for outstanding rent.

The Judge also found that the landlord’s changing of the locks and additional security measures were not acts inconsistent with the continuation of the lease. The landlord was reasonably protecting their own interests and securing a vulnerable property, rather than excluding the tenant. Receipt of the keys were also consistent with that concern and did not indicate a re-taking of possession. The landlord had expressly stated that it did not accept the keys by way of surrender. The marketing of the property, even with vacant possession, did not mean that the landlord was estopped from denying the termination of the lease, although re-letting would have determined the lease.

The Judge therefore decided for the landlord whose claim was in excess of £4 million.

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