Lease surrenders — unexpected consequences where no clean break

In the case of Baroque Investments Limited v Heis and Bewick (2012), the parties agreed the surrender of a lease. The deed of surrender gave a release in respect of rights and obligations on or after the date of the surrender but preserved the right of either party to pursue a claim in respect of any earlier breach. Two areas of dispute then arose.

Firstly, the landlord claimed that the tenant had failed to comply with an obligation to carry out certain reinstatement works. Under the terms of a licence for alterations, the tenant was bound to carry out these works ‘before the end of the lease’. Both parties agreed that the obligation existed and there was no disagreement that the reinstatement works had not been carried out. The critical issue was when a breach of this obligation arose. Was it before the lease expired? Or was it only after termination when the property was handed back in its non-compliant condition?

The court preferred the argument advanced by the tenant. Had there been no surrender, there would only have been a breach once the lease expired without the reinstatement works being carried out. As rights and obligations arising on or after the date of surrender had been released, the surrender had effectively removed any right of action the landlord might have had…

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