Lease Surrenders – Tips for Landlords and Tenants
Posted on 24th May 2020 at 17:10
A landlord and tenant can mutually agree to end a lease at any point before the expiry of the term (or any period of holding over). The arrangement of the landlord taking back the lease is called a surrender. There are two ways in which a surrender can take place. Either expressly via deed, or by a process called the ‘operation of law’.
If you are a landlord or tenant here are some useful tips to help you get through the process:
Tips for Landlords
Check for mortgages – A mortgage can survive a surrender and therefore you must make sure you obtain appropriate discharge documentation from the tenant.
Check for underleases – An underlease may also survive the surrender. This is the case even if the tenant underlet the property without consent.
Land Registry - make sure you have appropriate identification evidence (ID1 or ID2) before accepting the surrender from the tenant (if they are not using solicitors). A review of the registered title will reveal the existence of any mortgages or registered underleases – any registered lease will need de-registering after the surrender has taken place.
Searches – A review of pre-surrender searches (your solicitor will order these) will help you identify any changes i.e. registration of mortgages or new registered underleases.
Inspection - Carry out a full inspection of the property before taking the surrender to make sure there are no major breaches of the lease and no additional occupiers. Check that the landlords items of fixtures and fittings are still in the property and in working order. You should make sure you collect all keys, security passes and passwords etc in advance.
Contracting out procedure – If you are using an agreement to surrender and the lease has security of tenure you must follow the standard statutory procedure before entering into the agreement.
Competition –Do you need the tenant to enter into a non-competition clause to protect your property/business?
Media – Do you need to make sure you take from the tenant title and the relevant passcodes for any social media, website and emails accounts, etc.?
Tips for Tenants
Liability – If you are negotiating a surrender, you will want to make sure you have a full release of your liabilities under the lease particularly all past, present and future liabilities. A surrender by operation of law only specifically deals with any future liability and does not specifically exclude past liability (this is also the case in express surrenders by deed if the deed does not record the position correctly).
Guarantors – Guarantors are not specifically required to enter into a surrender deed but they may wish to be party to take a release of liability under the lease (See above for past, present and future liabilities).
Advanced rent and deposit – Make sure in any form of surrender you have recorded expressly the mechanism for the recovery of any advanced rents (paid in advance and after the date of the surrender) or deposits paid under the lease.
Rent reviews – Consider if there is a rent review due. Potentially unless expressly dealt with the right to review remains and so does the tenants liability to pay any shortfall.
VAT – Check the VAT position with your accountant on any payments to the landlord (a ‘reverse premium’) or made by the landlord in consideration of them taking the surrender. VAT will need to be added to some surrender payments if the landlord has opted to tax the property but if the payment is compensation for damages it is regarded as outside the scope of VAT.
This is not an exhaustive list of things you need to consider when ending a lease by agreement, but it’s certainly some useful tips to help you along the way.
It is always advisable for the landlord and tenant to seek their own independent legal advice before proceeding with such agreements. Ancora Law will be able to advise on the best course of action and can provide the necessary documentation and due diligence checks to ensure that the transaction runs smoothly.
We hope you find this useful but please do not hesitate to contact us if you wish to discuss any of these points in more detail.
This blog post includes general legal information provided by Ancora Law and is provided for example purposes only. This information may not be suitable to your circumstances and should not be considered as a substitute for the advice of a solicitor or other appropriately qualified professionals. Ancora Law is not responsible for any loss, damage or cost resulting from any decisions that are made in reliance on the information above, including legal, compliance and/or risk management decisions.
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