A court has rejected an attempt by administrators of an insolvent company to impose surrender on its landlord of a lease held by the company. The court examined the communications between the administrators and the landlord. This included a letter from the administrators returning the keys.
The features which pointed to the lease continuing were:
- the landlord communicated to the administrators what it was doing to protect its interests;
- the landlord rejected in writing the administrators’ posturing that the lease was over; and
- the landlord’s actions at the premises were all concerned with protecting the property.
A familiar story
The story is familiar. The tenant of commercial premises went into administration. The landlord could also look to the tenant’s parent company to pay the rent under a guarantee. The tenant company could not be saved and it went into liquidation. The landlord gave notice to the parent company to take up a new lease, as the landlord was entitled to do under the terms of the guarantee.
The guarantor’s response is also familiar. It said that the lease had been surrendered and it had no further liability to the landlord.
What had happened was a game of jingle mail. The court had to decide whether the outcome of that game was an unequivocal acceptance by the landlord that the lease had been surrendered. If so, the lease was at an end and the guarantor was off the hook. If not, the guarantor would be liable to pay the rent and to take up the new lease.
The tenant in administration
The background to the game was that 2 months into the administration, the administrators vacated the premises. Their solicitors wrote to the landlord’s solicitors stating that tenant had no intention of paying rent and had ceased to have responsibility for the premises.
A month later the administrators returned the keys saying that the premises were not being used and offering surrender for no payment.
The landlord had to secure the premises. Rather than expensive round the clock security personnel, the landlord installed screens, alarms, locks and smoke detectors.
A year on, the landlord marketed the premises through agents whose marketing particulars offered a long leasehold with vacant possession. After 6 weeks, the premises were removed from the market on legal advice.
The court looked at the events individually and collectively. Its conclusions were as follows:
- A tenant cannot effect a surrender simply by vacating. And the landlord can change the locks to secure the premises without bringing the lease to an end.
- Accepting the keys back did not indicate a surrender. One party has to hold the keys to prevent the absurd passing of the keys back and forth as the parties seek to avoid making any admissions.
- The extra security arrangements did not indicate a surrender. The landlord was just protecting its interests.
- It would have helped all concerned if the landlords had found a new tenant. So marketing, even offering vacant possession, did not suggest the acceptance of a surrender.
A court has rejected an attempt by administrators of an insolvent company to impose a surrender on its landlord of a lease held by the company. None of the landlord’s actions either alone or together amounted to an unequivocal acceptance that the lease was at an end.
Padwick Properties Limited v Punj Lloyd Limited  EWHC 502 (Ch) Lease;landlord;tenant;insolvency;administrators;surrender.