Wish to surrender a lease? Ensure you have consent from the landlord's lender

05 Oct 2017

A surrender of a lease without the consent of the landlord’s mortgagee will normally be ineffective, as illustrated by the recent case of Co-operative Bank Plc v Hayes Freehold Ltd (In Liquidation) [2017].

The facts in the case involved a superior lease and underlease where the freehold title was mortgaged to a bank.  The superior landlord, tenant and undertenant entered into a deed purporting to effect (a) a surrender of both leases, (b) a release of the liability of the undertenant and (c) (importantly) a release of liability of the guarantor of the undertenant.  The freeholder did not obtain the consent of its lender for the surrender.  This led to the surrender of the lease being ineffective but the tenant still losing the guarantee of the underlease.

The tenant tried various ways to unravel the surrenders/release.

The Court held that it was not an implied condition precedent to the release of the guarantee of the underlease that the surrender of the superior lease should be effective.  The release of the guarantee was clear and unconditional and would be given effect even though the surrender of the superior lease turned out to be ineffective as a result of the lack of the consent from the freeholder’s lender.  The tests for implying a condition were not met.  One point taken into account by the Court was that the tenant had appointed solicitors to ensure that it was able to surrender the superior lease.

The tenant’s other arguments to invalidate the surrender deed also failed.

The message from the case it is that it is crucial for any tenant surrendering a superior lease to ensure that any landlord which has mortgaged its interest has obtained the consent of the lender for the surrender.

For further information please contact our Real Estate Team.

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