Padwick Properties Ltd v Punj Lloyd Ltd

Surrender of a lease by operation of law requires unequivocal conduct by both parties, objectively assessed, which is inconsistent with continuation of the tenancy and makes it inequitable to dispute that it has ended. The tenant bears the burden of proof.

Vacating premises, returning keys, changing locks, installing security measures and marketing with vacant possession are not, without more, sufficient. The court must assess the landlord’s conduct as a whole. Protective measures and attempts to mitigate loss may remain consistent with the lease continuing. A guarantee covering sums payable under a lease may also extend to contractual interest and recoverable insurance costs.

Padwick, the landlord of Sim-Chem House, claimed rent, other sums and specific performance of Punj’s obligation under a deed of guarantee to accept a new lease if the tenant’s lease was disclaimed or the tenant ceased to be liable.

The tenant, SCL, entered administration, ceased occupation and later went into liquidation. Its liquidators disclaimed the Lease under section 178 of the Insolvency Act 1986. Punj contended that the Lease had previously been surrendered by operation of law through the tenant’s vacation, delivery of the keys, Padwick’s security measures and marketing of the Property.

The central issue was whether Padwick’s conduct, viewed individually or cumulatively, unequivocally accepted that the Lease had ended.

1. Claim succeeded. The Lease had not been surrendered by operation of law. Punj was liable under the guarantee, and Padwick was entitled to specific performance of the obligation to grant and accept a new lease.
2. Surrender by operation of law is consensual in the objective sense. It is founded on estoppel and requires conduct by both parties that is unequivocally inconsistent with continuation of the tenancy. The burden lies on the party asserting surrender. The principles stated in Bellcourt Estates v Adesina [2005] EWCA Civ 208 and Artworld Financial Corp v Safaryan [2009] EWCA Civ 303 provided the applicable framework.
3. The tenant’s vacation could not itself surrender the Lease. Nor did Padwick’s acceptance of sums paid through the administrators show that the Lease had ended. Changing locks and providing security were reasonable measures to protect the Property and were not inconsistent with the Lease. The same applied to additional security measures installed in early 2012.
4. Returning the keys was equivocal and, in any event, Padwick’s solicitor accepted them for security and expressly did not accept surrender. The solicitor’s authority point, supported by James v Evans [2000] EGLR 1, did not require determination.
5. Marketing the Property with vacant possession did not amount to surrender. An attempt to re-let or sell may be undertaken to mitigate loss and does not create an estoppel unless the landlord goes further and takes possession or otherwise acts inconsistently with the lease. The reasoning in Oastler v Henderson (1877) 2 QBD 575 was applied.
6. The guarantee covered all money payable under the Lease, including contractual interest and insurance costs. Padwick recovered the proven insurance sum of £45,176.78. Reasonable costs of preparing the new lease were assessed at £1,000 plus VAT.

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