10/05/2009

Such Sweet Surrender

I’d missed this case from a couple of months ago and it would be fair to say it doesn’t concern our usual kind of tenancy – the rent was £390,000 a year and complaints of disrepair concerned a malfunctioning swimming pool – but it does address the conditions for surrender of tenancy by operation of law.

Artworld Financial Corporation v Safaryan & Ors [2009] EWCA Civ 303 was an appeal from a County Court decision that there had been a surrender of the tenancy – the Safaryans being the tenants – and that Artworld’s claim for the rent for the remainder of the contractual term failed. There was also an unappealed finding against the landlord in respect of the ‘faulty premises’.

Briefly, the Safaryans took a three year lease of the ‘ambassadorial’ property in September 2004, with the annual rent of £390,000 payable 3 monthly in advance. From the start the Safaryans complained of problems with the swimming pool and the heating, such that they contended that they were entitled to repudiate the lease. The tenants left on 4 May 2006 and all the keys were returned to the landlord by 30 May 2006. The landlords proceeded to claim for the rent for the unexpired term, being £487,500 including interest. The tenants did not rely on repudiation in their defence but alleged that the landlords had acted in such a way as to accept surrender of the lease. (An attempt by the landlords to argue that this showed inconsistency on appeal was brushed aside as ‘To decide not to rely on a belt does not prevent you relying on braces.’)

At trial before HHJ Marshall, the judge upheld the defence of surrender, holding that the lease was surrendered in early June and before the next quarter’s rent was due. She also found for the tenants on the counterclaim, but permission to appeal on that point was refused.

The judge summarised the findings of fact as:
1.) The landlord’s acceptance back of the keys to the property.
2.) The landlord’s instructing and obtaining ‘the checkout report’ and inventory by Mrs Walton [who had been an agent of the landlord].
3.) The carrying out of works of redecoration to the property to the taste of Mr and Mrs Tatanaki.
4.) The re-hanging of certain curtains removed from the property at the Safaryans’ request.
5.) The removal of some garden sheds from the property.
6.) The return to the property of some furniture which had been taken away to storage because the Safaryans did not want it.
7.) The use of the drive of the property for parking Mr Fayez Tatanaki’s Rolls Royce and Mr Tatanaki’s, [that is Mr Tatanaki junior] Porsche motor cars, on several occasions.
8.) Mr Tatanaki’s moving into, and staying and sleeping at the property.
9.) The moving into the property of some furniture for Mr Tatanaki, and in particular IT equipment and his games console.
10.) Mr Tatanaki’s younger sister also stayed at the property.

(The Tatanakis held and ran Artworld as a family trust, so were held to be the landlord in effect). Although there was some dispute over the findings of fact at the Court of Appeal, these were not disturbed.

The Circuit Judge also noted that there were solicitors letters from landlord to tenant during this period which asserted that the lease was continuing. She found that this assertion was not decisive:

In my judgment the question whether there has been a deemed surrender by operation of law does not depend on the landlord’s stated intention, but on the intention demonstrated on an objective basis by its conduct as a whole. Of course this includes both what it says and what it does, and what it says may assist in interpreting the true effect of acts which might otherwise be equivocal, but is not open to the landlord to turn black into white merely by assertion. Just as one cannot ‘approbate and reprobate’, where aspects of the landlord’s conduct are contradictory the court must look at that conduct as a whole, and decide what is its real effect.

On the basis of the decided facts, including Mr Tatanaki junior moving into the house for his own benefit in early June, the real effect was that the landlord had taken possession:

In my judgment, considering all the facts above, the acts of the Tatanaki family, which Artworld must be taken to have authorised, amount to much more than merely protecting the property or seeking to make the best of the Safaryans’ having departed, and go significantly beyond anything consistent with the continued existence [of] the tenancy.

The landlord appealed. The argument was that:
1. The Judge was wrong to ignore the solicitors letters.
2. The finding of fact on redecoration was wrong as the landlord was entitled to do this under the lease, as the state of decoration was poor.
3. The finding of surrender was draconian – “a short period of residence by just one young man, his sister for a little while and, I think a housekeeper for some of the time at least, for a relatively short period of time, would deprive the landlord of nearly £500,000 worth of rent.” [para 22]. The burden of proof is on the one asserting surrender. and what must be shown is an unequivocal act. Oastler v Henderson [1877] 2 QBD 575 suggested occupation of rooms for a short period of time did not amount to such an unequivocal act.
4. The Judge was wrong to say the the principle of surrender by operation of law was more accurately viewed as a case of election rather than estoppel.
5. Even if there had been a surrender, the Judge was wrong to date it at the beginning of June, when Mr Tatanaki junior moved in (which was before a rent date).

On 1. all three judgments found that the Judge was right. She had not ignored the letters at all. What the Judge had said (quoted above) on the solicitors’ letters was beyond criticism.

On 2. this was wrong. The tenants were entitled to decorate the bedroom under the lease and have it remain so. What was done by the landlord was inconsistent with the lease. Further:

The essential point is that the landlord did redecorate the main bedroom, did re-hang the curtains and did reinstate some, at least, of their furniture. These acts were relevant to an assessment of the quality of Mr Tatanaki junior’s occupation, and the judge was entitled to rely on them in support of her conclusion. The landlord’s acts, taken as a whole, went significantly beyond anything consistent with a continued existence of the tenancy. [para 36]

On 3. Oastler v Henderson did not give enough facts to be taken as a clear factual precedent or benchmark. The principle is that an unqualified resumption of possession by or with the authority of the lessor, whether by re-occupation or re-letting, is inconsistent with the survival of the tenancy. Indecisive or ambiguous acts by contrast will not be. On the facts the Judge was entitled to find it unequivocal, although, as the Judge noted, many of the facts, taken in isolation, would be equivocal. The Judge’s summation was clear and accurate (and worth quoting at length):

(1) The issue of whether there has been a surrender by operation of law after a tenant’s abandonment of the leased premises must be determined by evaluating the effect of the landlord’s conduct as a whole (cf London Borough of Brent v Sharma (1992) 25 HLR 257 at 259). I accept Mr Kremen’s argument that the totality of such acts can amount to a resumption of possession even though individual acts might each be only equivocal. With this in mind —

(2) The test is whether the landlord’s conduct is ‘so’ inconsistent (Oastler v Henderson 1877 2 QBD 575 at 577) with the continuation of the tenant’s lease that it could only be justified as being lawful on the basis that the landlord has accepted the tenant’s implied offer to give back possession, and has taken possession of the premises beneficially for himself.

(3) Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.

(4) Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing.

(5) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord’s interest in the value of his property, is a reasonable response to the tenant’s evinced intention not to perform the obligations of the tenancy: cf McDougall’s Catering Foods Ltd v BSE Trading Ltd 1998 P & CR 312; Relvok Properties Ltd v Dixon (1972) 25 P & CR 1, at p 7.

(6) Similarly, any act of the landlord which amounts to the landlord’s performing the tenant’s covenants under the lease, such as keeping the garden tidy, would not necessarily amount to a resumption of possession as it is not inconsistent with holding the defaulting tenant to performing the lease.

(7) Any further act of the landlord referable to the landlord’s seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties: Oastler v Henderson (above). The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant’s abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so.

(8) However, if the landlord goes further and uses the premises for his own benefit beyond the totally trivial — and certainly, in my judgment, if such use amounts to occupation of the premises — then he re-takes possession of the premises inconsistently with the continuance of the lease. This will give rise to a surrender by operation of law, since it is only on the basis of having accepted such a surrender that the landlord’s acts would be lawful.

The Judge was also correct to hold that the totality of the landlord’s conduct can amount to an acceptance of possession even though the individual acts might each only be equivocal. Each case will depend on its own facts [para 30].

On 4. the Judge’s description was accurate. The description of surrender by operation of law is ‘well summarised’ in Bellcourt Estates v Adesina [2005] EWCA Civ 208:

The doctrine of surrender by operation of law is founded on the principle of estoppel, in that the parties must have acted towards each other in a way which is inconsistent with the continuation of the tenancy. That imposes a high threshold which must be crossed if the tenant is to be held to have surrendered and the landlord is to be held to have accepted the surrender.

This should not be taken as importing inequity as a separate requirement. Where possession is unequivocally offered and taken, it will, without more be inequitable to insist on the tenancy. [para 28]

All that that Judge meant by election was that once the landlord has elected to retake possession the surrender is complete. [para 32]. Her approach was beyond question in this regard.

On 5. the act of possession was in going in, not in then staying in the property for some time. The Judge was quite right to find possession taken when she did, for all that there was a rent day a few days later.

Appeal dismissed.

This strikes me as a useful case on principle and practice of surrender of tenancy. The whole course of conduct point could well be useful.

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

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