Padwick Properties Limited v Punj Lloyd Limited  EWHC
502 (Ch) is a reminder that conduct of both the landlord and
tenant are relevant to effect surrender by operation of law and
that the return of keys and vacating the premises alone is not
In 2005, Padwick Properties Limited ("Padwick")
acquired a long lease of a property subject to an underlease. In
2006 the lease was assigned to Simon Carves Limited
("SCL") subject to a guarantee from its holding company
Punj Lloyd Limited ("Punj"). Under the terms of this
guarantee Punj agreed to pay all monies due under the lease and to
take a new lease of the property if the lease was disclaimed.
In 2011 SCL went into administration and ceased trading. Its
assets were purchased by another subsidiary of Punj, Simon Carves
Engineering Limited ("SCEL"). SCEL was granted a licence
to occupy the property and remained in occupation until 28
September 2011. Two days later, SCL's administrators gave
notice to Padwick that it had vacated the property and that the
security obligations under the lease had therefore reverted back to
Padwick. In November 2011, SCL's administrators returned the
keys to the property to Padwick who however made it clear that it
did not accept the unilateral surrender. In 2012, Padwick took
steps to secure the property by changing some of the locks and, at
the request of their insurers, ensuring 24 hour security. For a
short while, Padwick also remarketed the property with vacant
possession. In 2013, SCL went into liquidation following which
Padwick gave notice to Punj that pursuant to the guarantee it was
required to enter into a new lease and pay the outstanding rent
due. Punj refused arguing that the lease had been surrendered.
The Court rejected Punj's surrender argument and ordered it
to pay the rent arrears (of approximately GBP 4 million) and take
up a new lease as per the terms of the guarantee. When considering
whether surrender by operation of law had taken place, the Judge
confirmed that the conduct of both parties must be inconsistent
with the continuation of the lease:
SCEL's occupation of the property
did not indicate that the lease had been surrendered as this was on
the basis of a licence to SCEL while SCL remained the tenant. SCEL
paid the licence fee to SCL's administrators who then sent the
money to Padwick on SCL's behalf. The Judge commented that
"the tenant cannot effect a surrender simply by vacating the
The locks were not changed for the
purpose of excluding SCL or of enabling Padwick to enter into the
property for its own beneficial use, instead the Judge found that
Padwick's actions were to protect both its own interests and
those of SCL and Punj.
It was clear from Padwick's
actions that acceptance of the keys was consistent with a concern
for the security of the property and did not indicate an intention
to take possession of the property. Further, the keys were
delivered to Padwick's solicitors who did not have authority to
make a disposition of a property interest on Padwick's
The Judge found that marketing the
property did not demonstrate surrender as this was not the same as
actually re-letting it; he also commented that it made no
difference that the property was advertised with vacant
This is a stark reminder to tenants that handing over the keys
and vacating the premises will simply not be sufficient for a lease
to be brought to an end and the tenant or indeed its guarantor
being released from its obligations under the lease and that a
lease will only be surrendered if there is an unequivocal agreement
by the landlord to that effect.
Conversely, landlords must be careful of the risk of innocently
accepting surrender by operation of law and should, when handed
over keys, reserve their position and consider, if a guarantor is
available, enforcing the terms of the guarantee.
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