Artworld Financial Corporation v Safaryan & Ors

A surrender by operation of law occurs where the parties’ conduct, assessed objectively and as a whole, unequivocally demonstrates that the tenant has relinquished possession and the landlord has retaken it inconsistently with the tenancy’s continuation. The doctrine rests on estoppel or election; inequity is not a separate requirement.

Accepting keys, protecting or repairing the property, performing the tenant’s covenants, or seeking a new tenant will not ordinarily suffice. A landlord’s non-trivial use or occupation for personal benefit will ordinarily constitute a resumption of possession. Statements that the lease continues cannot preserve it when the landlord’s conduct unequivocally shows otherwise.

The claimant landlord granted the defendants a three-year residential lease. The tenants left the property with about 15 months remaining and returned all the keys. The landlord claimed the outstanding rent, while the tenants contended that the landlord had accepted a surrender by operation of law.

HHJ Hazel Marshall QC found that members of the family controlling the landlord had redecorated parts of the property, restored furnishings and, most importantly, occupied it for private use. She held that the tenancy had been surrendered in early June 2006, before the next quarter’s rent became due.

The landlord appealed. The central issue was whether the judge had applied the correct legal test and had been entitled to find an unequivocal resumption of possession despite correspondence asserting that the lease continued.

1. Appeal dismissed. Jacob LJ, Dyson LJ and Sedley LJ agreed that the judge had applied the correct test and was entitled to find a surrender by operation of law.

2. The doctrine is founded on estoppel, although the landlord’s choice to retake possession may also be described as an election. The conduct must cross a high threshold: viewed objectively and as a whole, it must be unequivocally inconsistent with continuation of the tenancy. References to inequity do not impose an additional requirement. Once possession has been unequivocally offered and retaken, the landlord cannot both retain possession and claim continuing rent under the tenancy.

3. The cumulative effect of the landlord’s acts must be considered. Individual acts may be equivocal when isolated but, in context, may demonstrate a resumption of possession. Accepting keys, inspecting or repairing the property, preserving it, performing a tenant’s covenants or attempting to re-let will not ordinarily establish surrender because those acts may remain consistent with the tenancy.

4. Use of the premises for the landlord’s own benefit beyond the wholly trivial, particularly private occupation, will ordinarily amount to retaking possession. The distinction is between acts exercising ownership and acts undertaken merely to protect the property or benefit the tenant. Here, private occupation together with redecoration and the restoration of furnishings justified the finding that the landlord had taken possession beneficially for itself.

5. Statements in correspondence that the tenancy continues form part of the overall evidence, but cannot alter the legal effect of unequivocal conduct. The landlord cannot preserve a tenancy merely by asserting its continuation while acting inconsistently with it.

6. The surrender took effect when possession was retaken in early June. The subsequent duration and circumstances of occupation were evidence of the character of that initial act, rather than postponing the effective date of surrender.

• Court of Appeal (Civil Division): The landlord’s appeal was dismissed unanimously: [2009] EWCA Civ 303.

• Central London County Court: HHJ Hazel Marshall QC held that the lease had been surrendered by operation of law in early June 2006. Permission to appeal the separate decision on the tenants’ counterclaim concerning defects in the premises was refused and that issue was not pursued.