England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SHOREDITCH COUNTY COURT
(HIS HONOUR JUDGE COTRAN)

		Royal Courts of Justice Strand London, WC2
		18th February 2005

1. LORD JUSTICE PETER GIBSON: I will ask Lord Justice Longmore to give the first judgment.
2. LORD JUSTICE LONGMORE: The question in this appeal is whether Bellcourt Estates Ltd ("the Landlord") is entitled to arrears of rent which accrued in respect of a lease of 301-305 Plumstead High Street, SE18, between 22nd August 2000, the date of the lease, and 12th November 2001, when the landlord forfeited the lease for non-payment of rent, or whether such entitlement ceased on about 25th December 2000 (or any other date) when Mrs Adesina says that she surrendered the lease and that that surrender was accepted by the Landlord.
3. The facts of the case can be shortly stated. The rented property consisted of three dilapidated houses with what had been shops or businesses on the ground floor and residential accommodation above. It was acquired by the Landlord at auction in July 2000 and let to Mrs Adesina on 22nd August 2000 at a rent of £5,200 per quarter. She also promised to pay a deposit of £5,000. She did not pay any rent and paid only £2,500 towards the deposit. At an early stage, however, Mrs Adesina decided that she did not want the property and made various allegations of misrepresentation, undue pressure and unconscionability against the Landlord which, if true, might have enabled her to set the lease aside. All these allegations were rejected by the trial judge, His Honour Judge Cotran, partly on the basis that Mrs Adesina had taken possession of the property and carried out some redecoration. The judge held, however, that she ceased to occupy the property in November 2000, that the Landlord knew that she had ceased to occupy shortly thereafter and made no claim for rent at the next quarter day, 25th December 2000. He held (and it is fair to say that this was the judge's point which had to be taken by the defendant by way of amendment) that this operated as a surrender of the tenancy on or about that date, so that rent was not payable thereafter.
4. The facts which led the judge to his conclusion were that on 2nd November 2000 Mrs Adesina had orally told Mr Teitelbaum of Bellcourt Property Management (who managed the property on the Landlord's behalf) that she wanted her money back; moreover, she had complained that rain had been flooding the property due to leaks in the roof. On 7th November Mr Teitelbaum wrote to Mrs Adesina to say that the defects in the roof had been repaired and the property was as watertight as before. He took the opportunity to remind Mrs Adesina that the rent and balance of the deposit were outstanding. On 9th November Mrs Adesina replied to this letter by saying that Mr Teitelbaum had omitted the key reason for their conversation:

"... which is I stressed that I want my money back. I no longer want to deal with the like of your person. I won't go into full narration of the conversation. I will leave that for when you take me to court ...."

She added that the matter was now with her solicitor.

5. The judge then made the following findings in respect of Mrs Adesina and Mr Teitelbaum:

"It seems that after the 7th November she tells me, and I accept, that she packed up and left. ... The position was that she leaves, she does not have any dealings with him but she does leave, and I suppose is waiting, as per her letter, for him to take her to court for whatever reason so that she can get her deposit back ... As I say, that was the last communication between them. She does leave but she does not formally tell him. ...

Looking at the other part, what he did. He did nothing unfortunately. He says the place was empty, he realised that. He says he did not go in but he was capable of going in, but he knew that she had packed up because there was no trading, it must have dawned on him that she had gone. He says that he did realise that it was not occupied but he did not acknowledge that she was not a tenant. He said he was too busy to do anything. Obviously this is his property, he must have been concerned that this place is empty, that he received a deposit from a lady who never took it up. One would have thought that the sensible thing to do was to take possession because he was entitled to exercise his right of re-entry because she did not pay the rent, she did not pay a penny piece. He did not do that, he just left it closed for months and months and months and months. He was asked: 'Why did you not do anything, Mr Teitelbaum?' 'Too busy' he answered."

6. The judge then referred to the fact that the London Borough of Greenwich attempted to collect business rates from Mrs Adesina, who asserted that the property belonged to Mr Teitelbaum and that they should deal with him. When the Borough applied to Mr Teitelbaum, he said that the property was rented by Mrs Adesina and he sent them a copy of her signature on the lease.
7. The judge also referred to the authority of London Borough of Brent v Sharma and Vyas (1995) 25 HLR 257, said that case was very similar on the facts and returned to consider Mr Teitelbaum's conduct in the following terms:

"He tells me that by December he knew she was not there, he knew that the place was empty. Again he did not exercise his right to a peaceable re-entry. He was too busy, he says. He sits on it. On the 25th December he does not send another demand for rent, he does nothing, he is 'too busy'. And what seems to have activated him into acting is the dispute with the rates people because then he has to answer, and his answer was, 'She's the tenant.' With the greatest respect to him she was a would-be tenant who has gone, and it seems to me there is here overwhelming evidence, as there was in the case of London Borough of Brent v Sharma and Vyas, there is, in the words of that case, overwhelming evidence that both she and he were showing by their conduct, certainly by December, that the tenancy no longer existed, and I so hold.

In those circumstances I hold that she did in fact surrender occupation and possession some time in early December, and he accepted that by his conduct, certainly by the 25th December when the next rent was due under the agreement. We have a situation here, therefore, where by the act of both parties, as exemplified by the facts here, there was a deed under which she exercised her rights to decoration and preparation for a business. She made it quite clear that she no longer wants it and is at an end and she was not going to pay any more rent on or about the 7th November. He in turn knew that she had gone, that the place was empty, did not send any rent demands after she had gone, and I would say that both parties had known by mid December and before the 25th that this tenancy was at an end.

In those circumstances the main argument that has been advanced in this case is successful. I hold that this tenancy ceased by operation of law on or around mid December, and that knowledge was known to both parties and that therefore what is due here is the rent, because the first month's rent was agreed to be free, which is from the 25th September, paid in advance, or agreed to be paid until for that autumn. That is in the sum of £5,200."

8. Mr Banning, on behalf of the appellant, in his skeleton argument submits that, for a surrender to have taken place, there must be either an express surrender by deed or surrender by operation of law; a surrender by operation of law requires some act or conduct on the part of the landlord which is unequivocally referable to a determination of the tenancy such that it would be equitable for him to rely on the fact that there is no surrender by deed. He submits that there was no such act or conduct here.
9. The law is conveniently stated at page 849 of the 6th edition of Megarry and Wade: the Law of Real Property, in the following terms:

"Abandonment of the premises by the tenant without more (even if rent is unpaid) is not a surrender, because the landlord may wish the tenant's liability to continue. Nor is the delivery of the key of the premises to the landlord enough by itself. Even if he accepts it, it must be shown that he did so with the intention of determining the tenancy ... and not merely because he had no alternative."

10. So one asks if there has been unequivocal conduct of both parties which is inconsistent with the continuance of the existing tenancy. No doubt Mrs Adesina unequivocally intimated that she would like to be rid of the tenancy if she could. But what unequivocal conduct of the Landlord can be relied on?
11. All that has happened in the present case is that the Landlord did not submit any demand for rent, nor did he seek arrears or any service charge. Moreover, he did not respond to Mrs Adesina's letter of 9th November. But in the light of the law as stated by Megarry and Wade and the authorities cited, mere omission cannot, in my judgment, be unequivocal conduct of the necessary kind.
12. The case of London Borough of Brent v Sharma and Vyas was very different. In that case it was not the tenant who wished to establish the surrender but the landlord, who wanted possession of the property. The tenant, Miss Vyas, had written to the council to say that she was no longer sharing the flat with Mr Sharma and that she had moved. She said she had no objection to the council transferring the flat into Mr Sharma's name, but the council did not do that. What they did was that they:

(1) adjusted their housing account so that rent was no longer debited to Miss Vyas;

(2) served a notice to quit expiring as at one month from that date, in the knowledge that Miss Vyas was no longer in possession or occupation. The notice to quit was as a matter of fact ineffective because it had not been properly served, but the court held that it could be taken into account as part of the overall factual context;

(3) created several internal memoranda showing that Miss Vyas' tenancy had come to an end.

13. This court cited the then-current edition of Woodfall on Landlord and Tenant, to the following effect:

"The term 'surrender by operation of law' or 'implied surrender' (there being no distinction) is the expression used to describe all those cases where the law implies a surrender from unequivocal conduct of both parties which is inconsistent with the continuance of the existing tenancy."

14. Not surprisingly, the court held that the acts of the landlord as set out in the previous paragraph did constitute unequivocal conduct which was inconsistent with the tenancy. But I cannot agree with the judge that the facts of the present case are similar. Here, whether Mr Teitelbaum was "too busy" or not, all he did was to omit to demand the rent, omit to seek any arrears, omit to seek any service charge and not take the correspondence any further. His only other act was the positive act of informing the Borough Council that Mrs Adesina was the tenant and was responsible for the business rates. That is quite the reverse of conduct indicating that the tenancy had been surrendered.
15. On behalf of Mrs Adesina, Mr Thomas Oxton has appeared pro bono. We are most grateful to him for putting all possible arguments before the court and putting before us some of the relevant authorities. His submission is that, despite the fact that all that he could rely on the part of the Landlord was acts of omission, those acts of omission were sufficient conduct to amount to an acceptance of the surrender of Mrs Adesina's tenancy. I have already said that mere acts of omission cannot, in my judgment, amount to such conduct.
16. Mr Oxton drew our attention to the case of Preston Borough Council v Fairclough (1982) 8 HLR 70. But it seems to me that that was a very different case, because there it was the landlord who was seeking to establish the surrender after a tenant had left. In fact he was unable to do so. Griffiths LJ said in the course of that case, at page 73:

"The bare fact that a tenant leaves premises at a time when he owes rent is certainly insufficient to enable a court to draw the inference that there has been a surrender."

In this case, by contrast, we need to have unequivocal acts on the part of the Landlord and they, unfortunately for Mrs Adesina, do not here exist.

17. Other authorities have held that the onus is on the tenant to show that the lease has been terminated if he or she wishes to dispute liability for rent. Thus in Relvok Properties Ltd v Dixon (1973) 25 P&CR 1, it was held that even changing the locks after a tenant had left the premises was not sufficient to show that the lease had ended. Sachs LJ said at page 5 of the report:

"... as the law stands it is open to a landlord whose tenant has absconded both to protect the security of his premises and the state of their repair and yet maintain his rights for rent against that tenant until a fresh one is found and he then thinks fit to enforce the forfeiture. Whether in any individual case the landlord has done more than thus protect his interests is of course a question of fact in each case. The onus lies on the tenant to prove that more has been done and thus the lease terminated."

18. The learned judge does not seem to have taken into account the statements of the law in Megarry and Wade or the authorities there referred to. No doubt that was because, the point having been taken by the judge himself, counsel were not prepared with the necessary authorities.
19. I would only add this. The current edition of Woodfall, at paragraph 17.020, puts the matter in this way:

"The conduct of the parties must unequivocally amount to an acceptance that the tenancy has ended. There must either be relinquishment of possession and its acceptance by the landlord, or other conduct consistent only with the cesser of the tenancy, and the circumstances must be such as to render it inequitable for the tenant to dispute that the tenancy has ceased."

20. That passage is taken from the judgment of my Lord, Lord Justice Peter Gibson, when he was sitting at first instance in a case to which we have been referred, Tarjomani v Panther Securities Ltd (1983) 46 P&CR 32. In that case it was the tenant who was doing the disputing. As this court pointed out in Proudreed Ltd v Microgen Holdings Plc (1995) 72 P&CR 388, at 390, Woodfall would more accurately state the law if there were added at the end of the citation:

"... or such as to render it inequitable for the landlord to dispute that the tenancy has ceased."

21. That suggested correction to Woodfall does not appear to have been adopted in the edition available to us, which is dated March 2002. In my judgment it ought to be. I would allow this appeal.
22. LORD JUSTICE WALL: I agree.
23. LORD JUSTICE PETER GIBSON: I also agree that this appeal must be allowed. As we are differing from the judge, I add some observations of my own.
24. The way the question of surrender became an issue in the proceedings is worthy of note. Proceedings were issued on 9th January 2002 claiming arrears of rent. The defence, which Mrs Adesina prepared herself, took no point on surrender, nor did the replacement defence and counterclaim prepared by counsel for Mrs Adesina, nor did a further draft amended defence and counterclaim prepared by another counsel for Mrs Adesina who appeared for her at the trial.
25. As the skeleton argument for the trial indicated, the defendant's case was that the sums claimed by the claimant were not owed because of four defences: unconscionable conduct by the claimant; undue influence; misrepresentations; and the failure to complete conditions precedent to the lease.
26. We are told that on the first day of trial the judge expressed the opinion that the lease had been surrendered before the purported forfeiture on 12th November 2001. Mrs Adesina's counsel was invited to amend the defence to rely on surrender. The next day, we are told, counsel applied for permission to amend and, although that application was opposed by the claimant, the judge granted that permission. The prior pleaded case had contained the admission that the lease had been forfeited on 12th November 2001. That was an acceptance that the lease had continued until that date. What the judge allowed to be pleaded so belatedly on his own suggestion was the wholly inconsistent averment that there had been a surrender the prior year.
27. The judge, we are told, was handed a manuscript amendment to the defence and counterclaim. The claimant's advocate was not even supplied with a copy of that amendment, and so the bundle before us contained no version of the amended pleading on which the judge found that there had been a surrender. But from the judge's judgment and from the skeleton argument of Mr Banning (appearing for the claimant before us, as he did below) it appears that what was relied on was the letter of 9th November 2000 written by Mrs Adesina to Mr Teitelbaum, restating what she had earlier that month said to him in conversation, demanding the return of £2,500 (half the contractual deposit) and stating that she did not want to deal with the likes of Mr Teitelbaum, and the fact that she had ceased to occupy the property and had given up possession.
28. It was further pleaded that the claimant, whilst knowing that Mrs Adesina had ceased to occupy the property, accepted or demonstrated by its conduct that the lease no longer existed. It was said that the lease was surrendered on receipt of the letter of 9th November, or on a date shortly thereafter, when the claimant became aware that Mrs Adesina had given up possession of the property or, in the further alternative, on a date unknown prior to 12th November 2001. The conduct by the claimant which was relied on in the pleading was the failure by the claimant to demand rent and the failure to communicate with the defendant after the letter of 9th November. The judge held that that was the conduct from which surrender could be inferred.
29. A surrender may be express or by operation of law. The judge found that the relevant surrender was by operation of law. That requires not only the re-delivery by the tenant of possession of the demised premises, but also the acceptance by the landlord of that re-delivery. Otherwise the landlord is entitled to look to the tenant to pay the rent throughout the whole of the term of the tenancy, it not having been agreed that the tenant should have the right to surrender the tenancy prematurely (see Barrett v Morgan [2000] 2 AC 264 at pages 270, 271 per Lord Millett). Accordingly, the landlord's consent is necessary. No deed or other writing is required, but the conduct of the parties must unequivocally amount to an acceptance that the tenancy has been surrendered.
30. 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.
31. The effective re-delivery of possession by the tenant and its acceptance by the landlord are vital. Thus there will be a surrender when the tenant returns the keys of the premises and the landlord accepts them in circumstances which indicate that the tenancy thereafter no longer exists. The landlord must take possession in such a manner as to estop him from denying that the tenancy is at an end.
32. I cannot see anything in the present facts amounting to such unequivocal conduct on the part of the landlord. It seems to me that questions could be raised as to whether the conduct of Mrs Adesina was enough to constitute a surrender. But leaving that aside, in my judgment the facts relied on, being omissions on the part of the landlord, do not amount to unequivocal conduct by the landlord accepting any surrender. No authority has been shown to us in which mere inaction is enough. Griffiths LJ in Preston Borough Council v Fairclough (1982) 8 HLR 70, at page 73, does say that:

"If it could be shown that a tenant had left owing a very substantial sum of money and had been absent for a substantial time, then an application by the landlord under Order 24 might well be sufficient for a court to regard the tenancy as surrendered by operation of law ..."

33. To the extent that that tentative suggestion is based on the failure by the landlord to assert his rights for a substantial time, it is one about which, with all respect to Griffiths LJ, I would have serious reservations. In my judgment mere inaction would not be unequivocal conduct by the landlord. However, every case must turn on its own particular facts. It is sufficient to say that in the present case, for these as well as the reasons given by Lord Justice Longmore, it has not been shown that any surrender has been accepted by the claimant.
34. I too therefore would allow this appeal. I would only add my gratitude to Mr Oxton for appearing in this court on behalf of Mrs Adesina, and for the assistance which he has given us.
(Further argument on costs)
35. LORD JUSTICE PETER GIBSON: We are now asked to award indemnity costs to be assessed on the indemnity basis as well as interest at 10% above base rate, those being the maxima which the court can award where there has been a Part 36 offer and the successful party has beaten the offer.
36. In deciding what is just in the particular circumstances of this case, we take into account the fact that the point which was the subject of this appeal was the judge's own point which he encouraged counsel for Mrs Adesina to take.
37. We think that the appropriate order to be made is that the unsuccessful respondent pays the costs of the successful appellant, but only on the standard basis. However, there should be a higher award of interest than normal. We would award interest at 5% above base rate on the judgment sum from 20th August 2004.

ORDER: Appeal allowed with costs, to be the subject of detailed assessment if not agreed; the order of the judge set aside, judgment entered in whatever sum is the correct sum; interest awarded at 5% above base rate on the judgment sum from 20th August.

(Order not part of approved judgment) ____________________________