QFS Scaffolding Ltd v Sable & Anor

A surrender by operation of law requires conduct by landlord and tenant which is unequivocally inconsistent with the continuance of the lease. The threshold is high and the doctrine operates through estoppel, rather than subjective intention or a separate inquiry into fairness.

A direct tenancy at will or licence for an occupier cannot be implied while the existing lease remains in force. It cannot be assumed as the act which itself effects surrender. Where parties merely negotiate a new lease, and no new letting is granted, the original tenant's inaction or acquiescence will ordinarily not establish an implied surrender. An ambiguous receivers' report and non-participation in negotiations do not meet the required standard.

LDC held a 21-year lease of a builders' yard. After administrative receivers were appointed, QFS occupied the premises while the landlords and QFS negotiated a possible new lease. No new lease was completed. In 2008, LDC's receiver executed a deed purporting to assign the existing lease to QFS.

The landlords sought possession, contending that LDC had surrendered the lease by operation of law and that QFS occupied only as tenant at will. The Reading County Court accepted that contention and ordered possession. QFS appealed. The central issue was whether LDC's conduct through its receivers was unequivocally inconsistent with the lease continuing.

1. Appeal allowed. The possession order was set aside. Morgan J, with whom Smith LJ and Longmore LJ agreed, held that the lease had not been surrendered by operation of law.

2. The governing doctrine was estoppel. It required an unequivocal act by the landlord or tenant which would be invalid if the lease continued. The high threshold identified in Bellcourt Estates Ltd v Adesina [2005] 2 EGLR 33 was not met. The court accepted the explanation in Artworld Financial Corporation v Safaryan [2009] EWCA Civ 303 that there is no additional, free-standing inquiry into whether it is equitable to deny that the tenancy ended.

3. The judge below had wrongly treated QFS as holding an implied tenancy at will. A tenancy at will or licence may be implied to explain an occupier's presence only if the existing lease has already been surrendered or otherwise determined. It is circular to imply such a direct arrangement and then treat it as the act effecting the surrender.

4. An implied surrender may arise immediately before an actual new letting, with the original tenant's unequivocal assent, because two incompatible tenancies cannot coexist. Here, however, the parties remained in negotiations and no new lease was granted. The receivers' omission of the lease from their report to creditors was ambiguous. Their knowledge of QFS's occupation, and their lack of participation in negotiations, did not amount to unequivocal conduct accepting that LDC's lease had ended.

5. The lease therefore remained in being and passed to QFS under the 2008 deed of assignment. Any declaration was to reserve the unresolved question whether that assignment breached the lease covenants. The court did not determine whether the landlords' conduct was also unequivocally inconsistent with the lease continuing.

• Court of Appeal (Civil Division) — Allowed QFS's appeal in [2010] EWCA Civ 682, set aside the possession order, and held that the lease had not been surrendered by operation of law.
• Reading County Court — HH Judge Hamilton held that the lease had been surrendered by operation of law and made an order for possession against QFS.