A surrender is a mutually agreed way to ‘hand back’ a lease to the landlord and bring parties’ obligations under it to an end (usually). However, a recent High Court case highlighted one of the situations where the purported surrender can be ineffective – in this case meaning that one party was left to fulfil lease obligations that it thought had been terminated.
Background
A freehold owner of the property had granted a lease to a tenant, who in turn had sub-leased to a sub-tenant with the benefit of a guarantor for the sub-tenant’s obligations. A group company of the sub-tenant purchased the freehold with funding from a bank in exchange for a charge over the freehold.
It was then the intention that both the lease and the sub-lease would be surrendered, the obligations under them extinguished and the guarantor released. A deed of surrender was completed which was designed to achieve this.
Purported surrender
The High Court ruled that the sub-lease was successfully surrendered and that it was not conditional on a successful surrender of the head lease, and therefore the sub-tenant and its guarantor were both released from any future liabilities under the sub-lease.
Unfortunately for the head tenant however, the new freeholder had not obtained the bank’s consent to the surrender of the head lease in accordance with the terms of the charge. As a result, the head lease surrender was ineffective.