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Remember: Obtain Landlord’s Lender’s Consent Before Entering into a Deed of Surrender

Julian Spence

Julian Spence, Senior Solicitor in our Commercial Property team, highlights the importance of obtaining landlord's lender's consent before entering into a deed of surrender.

A recent case serves as a warning for tenants to obtain their landlord’s lender’s consent before surrendering a lease.

The High Court’s recent decision in Co-Operative Bank Plc v Hayes Freehold Ltd (In Liquidation) [2017] was that it is not possible to imply a covenant that the superior landlord had obtained its lender’s consent. 

In that case, it transpired that the landlord had mortgaged the freehold. The parties had not obtained the lender’s express consent to the surrender of the tenant’s headlease or the sub-tenant’s underlease. The Court found that the lender’s consent had not been obtained, and therefore neither the surrender of the headlease nor the underlease were effective. Therefore, neither the tenant nor the subtenant were released from their ongoing liabilities under the headlease or the underlease respectively. 

Before completing surrender of a lease, tenants should review the landlord’s title to check whether it has been mortgaged, and in particular whether any third party lender consents are required.

Failure to do so could result in the deed of surrender being ineffective, and effectively set aside, and the tenant may find itself under a continuing obligation to pay rent and perform the other tenant covenants in the lease which could cause an unexpected and unwelcome surprise.

For further information or legal advice, please contact Julian Spence or a member of our Commercial Property team.

This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.