RVB Investments Ltd v Bibby

A disclaimer of a lease by a liquidator or the Crown determines the insolvent tenant’s rights and liabilities, but does not ordinarily discharge the tenant’s guarantor. The guarantor’s liability continues unless the landlord takes possession or otherwise acts unequivocally so as to establish surrender by operation of law.

A statutory notice under section 17(3) of the Landlord and Tenant (Covenants) Act 1995 is not required where the tenant’s interest has vested in the Crown on dissolution and the vesting is an excluded assignment. Specific performance may be ordered where damages would be inadequate, including because the claimant’s prospective liability for rates would otherwise remain effectively uncompensated.

The claimant landlord brought proceedings against the surety of an insolvent tenant under two commercial leases. It sought rent and service charges, an order requiring the surety to accept a new lease of one unit following disclaimer, or, alternatively, rates.

The surety argued that his obligations ended on the tenant’s dissolution or disclaimer, that section 17(3) of the Landlord and Tenant (Covenants) Act 1995 barred recovery, and that the leases had been surrendered or forfeited through the landlord’s conduct. The central issues were the effect of disclaimer, the section 17(3) notice requirement, specific performance, and surrender by operation of law.

1. Disclaimer and the surety. Applying Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70, the court held that disclaimer under sections 178 to 182 of the Insolvency Act 1986 ends the insolvent tenant’s liabilities but does not affect the surety’s separate liability. The same principle applies to Crown disclaimer under section 1015 of the Companies Act 2006.
2. Dissolution did not itself terminate the Unit 2 lease. The lease vested in the Crown as bona vacantia under section 1012, and the Crown’s subsequent disclaimer was valid under section 1013. The surety’s contractual wording did not release him on disclaimer.
3. Section 17(3) of the Landlord and Tenant (Covenants) Act 1995 did not assist the surety. A vesting by operation of law was an excluded assignment under section 11 and did not release the tenant from its covenants. In any event, the notice requirement did not defeat the claim for a new lease or relief equivalent to specific performance.
4. The landlord could not insert a rent based on an uncompleted rent review. The new lease therefore had to provide for rent of £78,000 per annum. Specific performance remained appropriate because damages were inadequate: the surety was insolvent and a monetary judgment would provide little protection against the landlord’s potential liability for non-domestic rates.
5. The authorities establish a high threshold for surrender by operation of law. The conduct must unequivocally amount to acceptance that the tenancy has ended, normally through effective re-delivery and acceptance of possession or conduct consistent only with cessation of the tenancy. Inspections, protection of the premises, marketing, and alleged removal of equipment did not satisfy that test.
6. The claim succeeded. The landlord was entitled to specific performance in respect of Unit 2, with rent of £78,000 per annum, and to the agreed sums claimed for Units 2 and 4.

First-instance judgment. No prior appellate decision is stated in the judgment.