Euroresins UK Limited v TLC Investment Limited

Under section 38A of the Landlord and Tenant Act 1954, voidness is directed at the agreement to surrender and the terms on which it is agreed. It does not automatically invalidate every obligation in a wider transaction. Here, the surrender, repair obligations, expert machinery, releases, costs, indemnities and severability clause formed one bargain whose essential purpose was an early surrender. The whole Settlement Agreement was therefore void. The severability criteria would in any event fail because removing the offending terms would radically change the agreement. The expert-determination provisions were neither separable nor supported by a free-standing agreement to be bound. The claimant succeeded on both preliminary issues.

The claimant tenant had sued its landlord over the refusal of consent to an assignment of a business tenancy. The parties later compromised the proceedings through a Tomlin order and an annexed Settlement Agreement providing for an early surrender, delivery up in repair and expert determination of repair works.

The Tomlin order purported to sanction the surrender under the Landlord and Tenant Act 1954, but the parties accepted that the surrender agreement was void. They disagreed about whether the invalidity extended to the whole Settlement Agreement and whether the expert's reports remained binding. The preliminary issues were whether the Settlement Agreement and expert-determination provisions survived, and whether the reports constituted binding determinations.

The claimant succeeded on both preliminary issues.

1. Surrender and statutory invalidity. The court's former jurisdiction under section 38(4) of the Landlord and Tenant Act 1954 to authorise a surrender had been removed on 1 June 2004. The Tomlin order therefore could not validate the surrender, and the statutory procedure under section 38A(4) had not been used.
2. Extent of invalidity. Section 38A does not automatically invalidate every obligation in an instrument containing a surrender agreement. The court followed the approach in Joseph v Joseph [1967] Ch. 78 and applied Ultimate Leisure Ltd v Tindle [2007] EWCA Civ 1241. The relevant question is whether each term is part of the surrender arrangement or is an independent obligation. Allnatt London Properties Ltd v Newton (1983) 45 P. & C.R. 94 illustrated the same distinction.
3. Clauses 3.2, 3.3 and 3.4 were the core bargain for early surrender, delivery up in repair and the machinery to achieve that result. The remaining provisions regulated the consequences and performance of that bargain and had no independent commercial purpose. The whole Settlement Agreement was therefore void. Clause 11 could not preserve the remainder because it formed part of the void agreement.
4. Severability. Applying the criteria identified in Egon Zehnder Ltd v Tillman [2019] UKSC 32 in the alternative, the blue-pencil and consideration criteria were satisfied. The third criterion was not. Removing the surrender terms would produce a materially different contract, principally a repair regime without the agreed early surrender.
5. Expert determination. The court accepted in principle the observation in Dandara South East Ltd v Medway Preservation Ltd [2024] EWHC 2318 (Ch) that a broadly drafted expert-determination clause may survive an ineffective underlying contract. This clause was narrowly directed to repair obligations arising from the void surrender arrangement and had no independent purpose. It was not separable.
6. The RICS appointment process and the expert's terms did not create a free-standing agreement to be bound by the reports. The court distinguished ZVI Construction Co LLC v University of Notre Dame [2016] EWHC 1924 (TCC). Participation in a process believed binding only because of the invalid Settlement Agreement could not supply the missing agreement. The reports were not binding determinations.

The stay had been lifted only for resolving the New Dispute. A further application was required to reopen the underlying proceedings, and the court left the merits of that application to be addressed by a Master.