Property law: Surrender must be a consensual act

In these challenging times for the industry, some struggling tenants just want to throw in the towel and hand the pub back to the landlord. So how can they do this?

In law, a tenant can offer to surrender their tenancy back to the landlord at any stage. However, a surrender is only effective if a landlord accepts it - in other words, a surrender has to be a consensual act.

A tenancy can be surrendered in two ways: by an express surrender (confirmed in writing), or by what is known as "surrender by operation of law". This article looks at each of these in turn.

Deed of Surrender​

If a tenant tells their landlord they want to go, the landlord may well instruct their solicitors to formalise everything in a written document, called a Deed of Surrender.

If the tenancy is held in joint names then it is essential that the deed is signed by both tenants.

So, if your business partner has walked out on you and refuses to sign the deed you may have difficulties in going down this route, and you will need to talk to your landlord about other options. The second issue is to be clear with the landlord about what the exact terms of settlement will be in the Deed of Surrender.

The effect of a surrender is to bring the tenancy to an end from the date specified in the deed. That means you will have no further liability for rent and so forth after the date of surrender. But what about any historic arrears of rent (or damages for breach of repairing obligations) which existed prior to the date of surrender? And if it is a tied pub, what about any deficit on the trade account?

The key point here is that, unless the deed states otherwise, landlords will generally still have the right to pursue defaulting tenants for arrears of rent/damages which were owing up the date of surrender, even after they have handed the keys in. As a general rule, landlords have up to six years to pursue defaulting parties.

If the landlord and the tenant agree to a surrender by way of a deed, it will also need to be agreed who is paying the landlord's legal costs for drafting of the document.

In the current economic climate, some tenants may be so keen to get out that they may even consider offering the landlord a small premium to accept a surrender. Again, if this is an option then it makes sense to get this formally documented so that there is no doubt in anyone's mind at a later stage about what has been agreed.

Operation of law​

Instead of signing a deed, some landlords and tenants end a tenancy by "operation of law".

So what does this mean? It needs the tenant to abandon the pub entirely, and the landlord to do something which shows the landlord has accepted that the tenancy has definitely come to an end. In other words, a landlord cannot accept a surrender of a tenancy "by mistake".

For example, it is not enough for a tenant just to post the keys back to the landlord, or shove them back through the letterbox and walk off into the sunset.

Just handing the keys back does not in itself amount to a valid surrender. The landlord could agree to take the keys back purely to enable it to show prospective new tenants around, or to go in and do repairs, or to make the site secure, without accepting a surrender.

To protect themselves in cases like this, the landlord may well say they are accepting the keys back "without prejudice".

Therefore, when offering the keys back, a tenant will want to get definite confirmation from the landlord that they are prepared to accept an immediate surrender of the tenancy.

The point here is that the landlord has no obligation to accept a surrender of a tenancy before expiry of the contractual term.

If a landlord does decide to accept a surrender, they will often require the tenant to hand over the tenant's copy of the tenancy agreement as well as the keys. What if a tenant abandons the commercial part of the pub, but remains upstairs in the residential part while waiting for the council to rehouse them? Would that amount to surrender?

The general rule is that you cannot have a surrender of just part of a rented property. There might be a way of getting around this if - and only if - the landlord agrees to a deal (if, for example, the trading area can easily be separated entirely from the residential area).

A warning to landlords​

Next, a warning for landlords. If a landlord does accept a surrender, and then finds on inspection that the outgoing tenant had sub-let part of the residential area (without landlord's consent) to a third party, the landlord then takes the property back subject to those sub-tenants, even though the landlord had never given permission for any sub-letting.

Contrast this with forfeiture: when a landlord forfeits a tenancy, any illegal sub-tenants have no rights against landlords. So a landlord will be well advised to have a good inspection around the property for any unidentified third parties before agreeing to accept a surrender of a tenancy. n