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By D
05/11/2010

No Surrender!

QFS Scaffolding Ltd v Sable & Anor [2010] EWCA Civ 682

For those who can tear themselves away from the Supreme Court we offer this case which we somehow missed from the summer (possibly due to too many holidays!).

Mr & Mrs S had let a builder yard in Slough to the London Demolition Company Limited (“LDC”) for 21 years from August 2001. LDC carried on two businesses from the site. A demolition business (obviously) and a scaffolding business. At some stage two further businesses were formed, London Demolition (UK) Limited and QFS Scaffolding Limited (“QFS”). LDC then entered into administrative receivership in January 2006. During 2006, S and QFS entered into negotiations to grant QFS a new lease. QFS was in occupation during this period. However, those negotiations went poorly and ultimately, on 5 September 2008, QFS executed a deed with the administrative receiver of LDC which purported to assign them LDC’s tenancy for a premium of £1. S then started proceedings for possession on the basis that the tenancy had been surrendered by LDC by operation of law prior to the assignement, that QFS had been in occupation as a tenant at will, and that this tenancy had been determined. HHJ Hamilton sitting in Reading County Court found for S and awarded possession, QFS appealed.

This case is interesting partly because it offers an analysis of the current authorities on surrender and a development of them. This is conducted by way of reference to a series of propositions on surrender in Woodfall (paras 17.018-17.032). In particular a reference is made to the case of Artworld v Safaryan (which we dealt with here). The Court stated that Artworld altered the traditional position of surrender occurring where the circumstances make it inequitable for the landlord or the tenant to dispute that the tenancy has ended to one where “if there is an unequivocal offering and taking of possession, then it will be inequitable (without more) for one party to deny that the tenancy has ended by surrender” (@ 13). In short:

The authorities in this area all say that the underlying principle is one of estoppel. Where the conduct of a party is inconsistent with the continuation of the tenancy, that party is estopped from contending that the tenancy subsists. In general, the case law in this area has not involved a separate examination of questions such as reliance, or detriment, or change of position, or unconscionability, or whether the effect of the estoppel is temporary or permanent. It may be that the principles as to surrender by operation of law have evolved along their own path. The result which has been produced is that where both parties act on the basis that the tenancy has ended, the result will be that the tenancy has ended.

The question before the Court then was twofold.

first, was the conduct of LDC unequivocally inconsistent with the continuation of the lease? and second, was the conduct of the landlords unequivocally inconsistent with the continuation of the lease?

It seemed to the Court that the second question had not really been considered by the lower Court but, on appeal, it was argued for QFS that the answer to both questions was no. The lower Court had clearly directed itself that the conduct of QFS was not the conduct of LDC. This was challenged on appeal but the argument was not developed and it was dismissed.

The landlords’ case on this appeal proceeds by the following steps. The first step is that the landlords granted a tenancy at will to QFS. The second step is that LDC, through its receivers, assented to the grant of that tenancy at will. It is submitted that their assent is shown by four matters: first, the receivers knew of the existence of the Lease and of its terms; secondly, the contents of the receivers’ report to the creditors reflected their view that LDC was no longer liable under the Lease; thirdly, the receivers were aware that QFS was paying rent to the landlords and believed that the liability for rent was that of QFS and not of LDC; and fourthly, the receivers knew that the Lease had not been assigned to QFS.

The Court found this argument unattractive, particularly the very first step. The argument rather proceeded on the basis that a tenancy at will had been granted to QFS and made this an indication of surrender. However, if there had been no surrender then no tenancy at will could have been granted because the landlords would not have had any power to grant it. Therefore the Court dismissed the argument advanced and returned to the essential question of whether the actions of S and LDC had been sufficient to create a surrender at all.
The principles of a new let creating a surrender by operation of law as set out in Woodfall were distinguished by the Court which said that in those cases there had been a clear indication by all parties that they were assenting to the grant of a new tenancy. In those cases there is an implied surrender by the outgoing tenant immediately prior to the granting of the new tenancy because the assertion that the old tenancy is maintained is inconsistent with the tenant’s open assent to a new teanncy being granted. That was not the case here. No new lease was ever in fact granted to QFS as the negotiations for it failed. To suggest that the negotiation process implied a tenancy at will was to put the cart before the horse and make the answer to the question the question itself.

It was argued that S had accepted rent from QFS and the receivers for LDC were aware of this and that this itself implied the new tenancy at will. The evidence for this was held by the appeal court to be equivocal at best. Further, it was by no means clear that the payments made by QFS were intended to be rent.

The final point for S was that the report of the receivers to the creditors of LDC issued in April 2006 made no mention of the lease and stated that S was owed nothing. However, the report was silent on the lease and a reader who was aware of its existence would simply have concluded that the report did not deal with the lease. It was not argued for S that the report created an implied surrender, that was assumed to have happened later once payments were made by QFS.

In short the Acts of the receivers and S were simply insufficient to be the unequivocal intentions required to assume a surrender. As there was no surrender there could be no tenancy at will and the case for S failed at that point. Appeal dismissed.

D is a solicitor specialising in landlord and tenant matters with a London firm.

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