Padwick Properties Ltd v Punj Lloyd Ltd [2016] EWHC 502 (Ch)

[2016] EWHC 502 (Ch)Case No HC-2014-002133
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 9 March 2016
Before
His Honour Judge Keyser Q.C.sitting as a Judge of the High Court
Between
PADWICK PROPERTIES LIMITEDClaimantPUNJ LLOYD LIMITEDDefendant
Thomas Jefferies (instructed by Allen & Overy) for ClaimantRobert-Jan Temmink (instructed by Arlingtons Sharmas) for DefendantHearing Hearing dates: 7, 8 and 9 March 2016
JudgmentH.H. Judge Keyser Q.C. :Introduction
[1]The claimant (“Padwick”) is a property company registered in the British Virgin Islands. In 2005 Padwick acquired a long lease of a property called Sim-Chem House, Stockport (“the Property”). The Property was subject to an underlease dated 12 April 2000 for a term of twenty-one years (“the Lease”). The annual rent payable under the Lease in 2011 was £784,268; if—which is the principal issue in the case—the Lease is subsisting, the annual rent is now £887,325.[2]In 2006 the Lease was assigned to a company that was then called Sembcorp Simon Carves Limited but shortly afterwards changed its name to Simon Carves Limited (“SCL”). The defendant (“Punj”), which is a substantial Indian company, is the ultimate holding company of SCL. When SCL took the assignment of the Lease, Punj entered into a deed of guarantee with Padwick, whereby it guaranteed payment of all moneys due under the Lease and covenanted (inter alia) that, if the Lease were disclaimed or SCL otherwise ceased to be liable on its covenants in the Lease or to exist, it would upon notice duly given by Padwick accept a new lease of the Property upon the same terms mutatis mutandis.[3]SCL ran into financial difficulty and was kept afloat by loans from Punj. On 7 July 2011, acting under a debenture granted to secure those loans, Punj placed SCL into administration. SCL ceased trading, and on the following day its business and most of its assets were sold to another subsidiary of Punj, Simon Carves Engineering Ltd (“SCEL”). The terms of the sale granted SCEL a licence to occupy the Property in return for a licence fee equal to the sums due under the Lease from time to time. SCEL remained in occupation of the Property until 28 September 2011. On 30 September 2011 the solicitors acting for SCL’s administrators wrote to Summers Solicitors, the solicitors then acting for Padwick, informing them that SCL had vacated the Property and asserting that “the security and safety of the Property will revert to your client.” Some weeks later, SCL’s administrators returned the keys to Summers Solicitors. In 2013 SCL went into liquidation and the liquidators disclaimed the Lease.[4]Padwick has taken steps to secure the Property, and for a short while in 2012 it was on the market, but it has remained vacant since September 2011.[5]On 19 December 2013 Padwick’s solicitors, Allen & Overy, gave notice to Punj under the deed of guarantee, requiring it to enter into a new lease; they also demanded payment of moneys due under the Lease. Punj responded by saying that there had been a surrender of the Lease; the guaranteed liabilities had thereby been brought to an end and Punj had no extant liability under the deed of guarantee.[6]These proceedings were commenced on 15 May 2014. Padwick claims against Punj payment of rent and other moneys due under the Lease since 29 September 2011 and a decree of specific performance in respect of Punj’s obligation to take a new lease. The principal issue in the case is whether or not the Lease was indeed surrendered by operation of law as Punj asserts. The principal facts on which Punj relies are the following: that the Property was vacated in September 2011; that the keys were returned; that Padwick changed the locks and took extensive measures to secure the Property; and that Padwick marketed the Property for sale with vacant possession. I shall say more about these matters below.

Surrender by operation of law: general principles

[7]Surrender by operation of law is a consensual transaction, constituted by conduct that is unequivocal on both sides and that renders it inequitable thereafter for either party to dispute that the tenancy has ended. The consensual nature of the transaction is to be tested objectively; surrender does not rest on subjective intentions but is founded on estoppel. The burden of proof is on the party asserting that the tenancy has indeed been surrendered. Those short propositions are, I think, uncontroversial.[8]In Bellcourt Estates v Adesina [2005] EWCA Civ 208, [2005] 2 EGLR 33, Peter Gibson LJ summarised the essence of surrender by operation of law in these terms:
“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.”
[9]In Artworld Financial Corp v Safaryan [2009] EWCA Civ 303, Jacob LJ said:
“11. ... It was common ground that the legal test for surrender by operation of law, is essentially accurately set out in Woodfall’s Law of Landlord and Tenant. I am reading from an edition which appears to have a date of January 2007. Paragraph 17.018 says: ‘There is legal distinction between a surrender by operation of law and an implied surrender. The terms surrender by operation of law “is applied to cases where the owner of a particular estate has been a party to some act the validity of which he is afterwards estopped from disputing, and which would not be valid if his particular estate had continued to exist…”.’ 12. There the law treats the doing of such act as constituting a surrender. This principle does not depend on the actual intention of the parties but on estoppel. A surrender by operation of law does not depend on the intention of the parties; it takes place independently and, even in spite of intention, the foundation of the doctrine is estoppel. 13. Most critically for present purposes is paragraph 17.020, headed ‘Act must be unequivocal’: ‘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 landlord or the tenant to dispute that the tenancy has ceased.’”
[10]In the same case, Dyson LJ at [29] expressly approved a number of propositions enunciated at first instance by HHJ Hazel Marshall QC:
“(1) The issue of whether there has been a surrender by operation of law after a tenant’s abandonment of the leased premises must be determined by evaluating the effect of the landlord’s conduct as a whole (cf. London Borough of Brent v Sharma (1992) 25 HLR 257 at 259). I accept Mr Kremen’s argument that the totality of such acts can amount to a resumption of possession even though individual acts might each be only equivocal. With this in mind— (2) The test is whether the landlord’s conduct is ‘so’ inconsistent (Oastler v Henderson 1877 2 QBD 575 at 577) with the continuation of the tenant’s lease that it could only be justified as being lawful on the basis that the landlord has accepted the tenant’s implied offer to give back possession, and has taken possession of the premises beneficially for himself. (3) Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them. (4) Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing. (5) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord’s interest in the value of his property, is a reasonable response to the tenant’s evinced intention not to perform the obligations of the tenancy: cf. McDougall’s Catering Foods Ltd v BSE Trading Ltd 1998 P & CR 312; Relvok Properties Ltd v Dixon (1972) 25 P & CR 1, at p 7. (6) Similarly, any act of the landlord which amounts to the landlord’s performing the tenant’s covenants under the lease, such as keeping the garden tidy, would not necessarily amount to a resumption of possession as it is not inconsistent with holding the defaulting tenant to performing the lease. (7) Any further act of the landlord referable to the landlord’s seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties: Oastler v Henderson (above). The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant’s abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so. (8) However, if the landlord goes further and uses the premises for his own benefit beyond the totally trivial—and certainly, in my judgment, if such use amounts to occupation of the premises—then he re-takes possession of the premises inconsistently with the continuance of the lease. This will give rise to a surrender by operation of law, since it is only on the basis of having accepted such a surrender that the landlord’s acts would be lawful.”
Of course, these are the words of a judgment and not of a statute. But they are, in my respectful opinion, a helpful guide to and summary of the relevant law.[11]In Artworld the Court of Appeal specifically approved paragraph in the judgment of HHJ Marshall QC, on which Mr Temmink for Punj relies in the present case:
“In my judgment the question whether there has been a deemed surrender by operation of law does not depend on the landlord’s stated intention, but on the intention demonstrated on an objective basis by its conduct as a whole. Of course this includes both what it says and what it does, and what it says may assist in interpreting the true effect of acts which might otherwise be equivocal, but is not open to the landlord to turn black into white merely by assertion. Just as one cannot ‘approbate and reprobate’, where aspects of the landlord’s conduct are contradictory the court must look at that conduct as a whole, and decide what is its real effect.”

The guarantee

[12]The Deed of Guarantee was dated 19 July 2006 and made between(1) Padwick as Landlord and(2) SCL as Tenant and(3) Punj as Guarantor. By clause 3, Punj covenanted with Padwick in terms contained in Schedule 1. I need only refer to four provisions in Schedule 1. “1.1 That the Tenant shall pay the rents reserved by and other monies made payable by the Lease on the days and in the manner specified in the Lease and shall duly observe and perform all the covenants and conditions on the tenant’s part contained in the Lease. 1.2 That in case of default of such payment of rents or other monies or observance or performance of any of those covenants and conditions during the Term the Guarantor shall pay and make good to the Landlord on demand such default and shall indemnify the Landlord on demand against all losses, damages, costs and expenses thereby arising or incurred by the Landlord. 2. That if the Lease is disclaimed or the Tenant otherwise ceases to be liable on its covenants in the Lease or to exist (‘Event’), the Landlord may within six months after the Event by notice require the Guarantor to accept form the Landlord a new lease of the Premises:2.1 for a term equivalent to the residue which would have remained of the Term if there had been no Event;2.2 at the same rents as are reserved in the Lease (including reviewed rents and so that if any review under the Lease is current but undetermined at the date of the Event, the rent first reserved by the new lease shall from the commencement of the new lease be the reviewed rent which in respect of the periods before and after such determination shall be payable); and2.3 subject to the like covenants and conditions as are contained in the Lease, the new lease and rights and liabilities under it to take effect commencing on the date of the Event; and2.4 the Guarantor shall pay the Landlord’s reasonable costs incurred by the Landlord in connection with the new lease and the Guarantor shall accept the new lease accordingly and shall execute and deliver to the Landlord a counterpart thereof.” “8. The Guarantor provides the covenants in this Schedule as principal covenantor.”

The relevant facts

[13]On 7 July 2011 SCL was placed into administration and three individuals at PricewaterhouseCooper (“PwC”) were appointed as joint administrators.[14]On the following day, 8 July 2011, a sale and purchase agreement was made between SCL as Seller and SCEL as Purchaser. By clause 3 SCL agreed to sell and SCEL agreed to purchase whatever right, title and interest SCL might have in and to its Assets as there defined, other than Excluded Assets. This did not include an agreement for sale of the Lease, which did not fall within the definition of Assets. Clause 17 provided:
“The Seller grants a licence to the Purchaser to occupy Sim Chem House for the Licence Period [basically, 6 months from Completion] in accordance with the terms of the licence set out in Schedule 2. For the avoidance of doubt the Purchaser shall not be taking, and shall have no obligation to have assigned to it, Sim Chem House.”
[15]The Terms of Licence in Schedule 2 provided (clause1.1 ) that SCEL might occupy on a non-exclusive basis as a licensee only and (clause1.2 ) that it would not hold itself out as tenant. Clause 2 required SCEL to comply with the provisions of the Lease. Clause 2.10 prohibited SCEL from impeding SCL’s and the joint administrators’ exercise of their rights of possession and control of the Property. Clause 2.12 provided that SCEL would pay to the joint administrators, by way of licence fee and not by way of rent, “an amount equal to all Rents (excluding VAT charged in respect of such Rents) for which the Administrators are liable”. Clauses 3 and 4 are also relevant:
“3. Upon receipt by the Administrators of the Licence Fee and other sums paid by the Purchaser pursuant to this Part and insofar as not already paid, the Administrators shall make payment of the same to the Landlord forthwith. 4. At the option of the Purchaser, the payment of Rents due under the Lease may be made by the Purchaser to the Purchaser’s Solicitors and then by the Purchaser’s Solicitors, acting as agents for the Administrators, to the relevant Landlords solely for the purposes of paragraph 2.12 and for so long as the agency exists ...”
[16]It does not appear that any permission was sought from Padwick for the licence arrangement, and for its part Padwick was not inclined to object because the licence provided a source of rental income.[17]Pursuant to the arrangement in the Sale and Purchase Agreement, SCEL went into occupation of the Property and paid to the joint administrators the amount of all moneys falling due under the Lease to 28 September 2011. In the joint administrators’ progress report for the period 7 July 2011 to 6 January 2012 it was recorded that the total paid by SCEL to the joint administrators and by them to Padwick was £131,054.[18]It is convenient at this point to mention two matters relied on in the Amended Defence and by Mr Temmink in his skeleton argument, which are there identified as “(a) acceptance of rent from SCEL” and “(b) failure to demand rent from SCL”. So far as the latter is concerned, Padwick did invoice SCL on 1 June 2011 for the rent falling due on 24 June 2011 in respect of the quarter to 28 September 2011. So far as the former is concerned, the position was in fact as envisaged in the licence agreement and as recorded by the joint administrators in their progress report, namely that the moneys due under the Lease were paid to Padwick by PwC having been received by them from SCEL.[19]On 22 August 2011 Summers Solicitors for Padwick wrote to the directors of Punj to remind them of their obligations for the payment of rent and for the security of the Property after SCEL went out of occupation. “[W]e are aware of the fact that Simon Carves Ltd, the tenant under the Lease, is now in administration and, although rent has now been received up to and including 28 September 2011, there is a suggestion from the administrators that a company which is associated with you, which they allowed into occupation of the Property as part of the administration, will have vacated by 29 September 2011, which is when the next rent payment will be due under the Lease. You should be aware that under the Guarantee you have provided a guarantee to our client and their successors in title that Simon Carves Limited will pay the rent reserved by and other monies made payable under the Lease and also that they will duly observe and perform all of the covenants and conditions on the tenant’s part contained in the Lease. You further covenant that you will in the case of any default on the part of the tenant pay and make good to our client on demand such default and also to indemnify our client on demand against all losses, damages, costs and expenses arising out of the default or otherwise incurred by our client. We are therefore writing to put you on notice that our client will require you to pay the rent due on 29 September 2011 in the sum of £196,067. ... The insurers will require adequate security to be provided at the Property in the event of it being vacated in order to maintain their cover in respect of the risks which are covered by our client’s insurance of the Property and accordingly we would request that you ensure that adequate security is provided at the Property by the time your associated company vacates so that the Property is not left unattended. Clearly it would be better if the Property continued to be occupied but this is something that you may be able to control but our clients have no control over.”[20]There was no reply to that letter. On 15 September Summers Solicitors wrote to the joint administrators. The letter referred to the licence to SCEL (“the purchaser”) and continued:
“Accordingly, the administrators are liable for payments due under the lease, at least during the period of occupation by the purchaser and I am instructed that the premises are still occupied.”
The letter went on to demand overdue payment of £42,909.07 in respect of the insurance premium for the year beginning 10 September 2011.[21]The administrators’ solicitors replied on 20 September 2011. They said:
“As your client is aware, the Company [i.e. SCL] will be vacating the Property on or before the 29 September 2011. Accordingly we see no reason why any liability for insurance covering the period after that date should accrue to the Company, as indeed you acknowledge in the second paragraph of your letter. The administrators have no intention of paying rent or any other payments due under the lease for any period for which they are not in occupation of the Property. The administrators therefore propose to settle the Company’s liability for insurance pro rata, being 20 days from 10 September 2011. ... As such, please find enclosed a cheque for an amount of £2,344.76 in full and final settlement of the Company’s obligations under the lease as regards insurance.”
[22]On 22 September 2011 Mr Koehne of Summers Solicitors wrote to both Punj and Dundas & Wilson, the solicitors acting for the joint administrators. The letter to Punj contained a formal demand under the Guarantee for payment of the outstanding insurance premium. The letter to Dundas & Wilson said that the full amount of the insurance premium was payable and that the cheque (which was returned) could not be accepted on the basis of a full and final settlement. It continued:
“As to any vacating of the property, we would remind you that your clients and also Punj Lloyd Limited as guarantors of Simon Carves Limited will remain liable under the lease and we trust that they will behave responsibly regarding the security of the property and make adequate arrangements to protect the property in the event that the property cease to be occupied.”
[23]That makes clear that the vacating of the Property by SCL and SCEL was not being accepted, expressly at least, as a surrender of the Lease. In the course of the dispute reliance has been placed on the fact that in September 2011 Mr Simon Benedikt, who worked for the company that was managing the Property for Padwick, visited to inspect the Property and did so in the company of two letting agents. This, it is suggested, is indicative of an intention to take possession of the Property. That suggestion has to be seen in the context of the other facts however.[24]On 28 September 2011 SCEL vacated the Property. On 30 September Dundas & Wilson wrote to Summers Solicitors, who received the letter on Monday 3 October:
“As you are aware the Company [i.e. SCL] vacated the Property yesterday. As we have previously stated, the Company has no intention of paying rent or any other payments due under the lease for any period for which they are not in occupation of the Property. Our clients have acted reasonably in trying to settle the demand for insurance on a pro rata basis from 10 September 2011 until yesterday. We will hold the cheque that you have returned to us should your client now wish to accept this offer. The Company ceased to have any responsibility for the Property from midnight yesterday and the security and safety of the Property will therefore revert to your client.”
[25]That was a bold letter. The departure of the licensee (SCEL) or even of the tenant (SCL) could of itself have no effect on the Lease. A tenant cannot divest itself of a lease it does not like simply by walking away from the demised premises. No justification was offered for the stance being taken in the letter, which represents a clear statement on the part of the tenant that it will not do anything to preserve the security of the Property or in any other way to comply with the terms of the Lease.[26]When he received the letter, Mr Koehne spoke to Mr Benedikt. I think it probable that their conversation concerned two main points. The first was the question of what was to be done about the keys to the Property. It is likely that by this time PwC had made contact with Mr Benedikt and indicated a desire to return the keys. This is suggested by the terms of an email that PwC sent to personnel at SCL on 3 October 2011:
“We have made contact with the landlord to discuss the return of the keys, and we’re awaiting instructions.”
It is also consistent with Mr Benedikt’s evidence that, at a time before the keys were eventually delivered, he told Mr Koehne not to accept the keys if they were offered to him.[27]The second matter was security. Mr Benedikt had received information that, after SCEL vacated the Property, two doors at the rear of the Property had been found open—apparently left open rather than forced—and that some youths had set alight discarded office furniture in the car park of the Property. Acting on his instructions, Mr Benedikt’s cousin, a locksmith, secured the doors. Mr Benedikt informed Padwick’s insurance brokers that the Property was empty. With effect from early October 2011, at the insistence of the insurers, Mr Benedikt put in place a round-the-clock security presence.[28]On 5 October 2011 Mr Koehne replied to Wilson & Dundas. The letter, which is perhaps not entirely coherent, says that, as the administrators were in occupation on 29 September, they are liable for the full amount of the rent falling due for payment on that date. More pertinently, it goes on to reject any contention that the administrators could simply divest themselves of any responsibility in respect of the Property; the letter said that Padwick would continue to hold the administrators and Punj liable for all losses and damages suffered.[29]Also on 5 October 2011 Summers Solicitors on behalf of Padwick sent a formal demand to Punj under the Guarantee in respect of the outstanding insurance premium and the rent due on 29 September 2011.[30]On 23 November 2011 PwC returned the keys to the Property to Mr Koehne, by courier and—as I am satisfied—under cover of a letter of that date. The letter referred to the licence to SCEL and continued:
“As you are aware, SCEL vacated the Property on 28 September 2011. For the avoidance of doubt, the Property is not in use for the purposes of Administration and the Company has no further interest in the Property. The Joint Administrators have made clear their intention to surrender the Lease. The Joint Administrators do not and will not adopt any lease or contract you may have with the Company [i.e. SCL] and no payments will be made on behalf of the Company. Accordingly, the Company is offering a surrender of the Lease to the Property by operation of law. Neither the Joint Administrators nor their firm shall incur any personal liability in relation to the surrender of the Lease. I should be grateful if you would confirm your acceptance of the surrender by signing and returning a copy of this letter to the above address.”
[31]Mr Koehne has no copy of that letter on his file. Nor does he have any note or other document to show that he had any discussion with anybody concerning the letter. Nevertheless, on the basis of his evidence and the evidence of Mr Benedikt, and in the light of evidence that shows how PwC understood the matter, I am satisfied that Mr Koehne had at least two conversations concerning receipt of the keys in November 2011. First, he spoke to Mr Benedikt. This conversation may perhaps have been before the keys were received, because Mr Benedikt’s evidence (which I accept) was that, although he had initially instructed Mr Koehne not to accept the keys, someone at PwC on behalf of the joint administrators told him that, unless the keys were accepted, they would simply be thrown away; therefore he told Mr Koehne that he could accept the keys, provided he made it clear that he was doing so for security only and not as a surrender. The second conversation was with a woman at PwC, probably Donna McNeill. It is likely that, as Mr Koehne’s witness statement records, that person made a telephone call to confirm that the keys had been received. I accept Mr Koehne’s evidence that he told her that he had received the keys and that it is likely that he told her that he did not do so in acceptance of a surrender. It is suggested for Punj that such a conversation is unlikely to have taken place, because it would have been recorded in a file note or an email. However, the absence of a written record is by no means determinative. There is almost certain to have been a conversation with someone concerning the receipt of the keys, yet none is recorded in a file note or other document. Further, it is not suggested that Mr Koehne did indeed return a copy of the letter signed in acknowledgment of acceptance of surrender. Again, the joint administrators’ progress report for the period 7 July 2011 to 6 January 2012 records:
“SCEL vacated the premises on 28 September 2011. The Administrators have offered an informal surrender of the Company’s lease to the landlord, which has not been accepted.”
That shows how PwC understood the matter. It is also inherently probable that if Mr Koehne had simply failed to respond to the letter of 23 November 2011 PwC would have pursued the matter in order to clarify the position. I bear in mind that in an email dated 20 August 2012—well after the progress report—Aidan Donaldson of PwC told Punj that no acknowledgment was ever received to the offer of surrender. That is probably true in the sense that no written acknowledgment was given, whether by return of a copy of PwC’s letter of 23 November 2011 or otherwise. However, I am satisfied and find that the matter was discussed by telephone, as I have said.[32]The evidence of Mr Benedikt is that there were continuing concerns regarding the security of the Property. In late 2011 he received reports from the local police that it was being used as a “hang-out” for local youths. (I do not understand this to mean necessarily that youths broke into the Property, though perhaps they did. Presumably they were congregating and up to no good around the back of the Property. There is also evidence that ground-floor windows at the Property were smashed.) The police suggested that they could make use of the external rear area of the Property for training and kennelling police dogs. Mr Benedikt’s evidence, which was not challenged on this point, was that he told the police that he could not authorise such use, as there was a tenancy in place, and that the police should take the matter up with PwC. His witness summary, the substantial accuracy of which he confirmed on affirmation, continued:
“A little while later, the police telephoned Mr Benedikt again to say that they were unable to get anywhere with PwC and asked him whether there [was] any way he could help. Mr Benedikt made some calls to PwC but they stated that they were not willing to permit the police to occupy the Property in this way.”
It is not clear whether PwC’s stance was in the nature of a refusal of permission or rather an unwillingness to accept that they had authority to give permission.[33]The round-the-clock security presence was costing Padwick approximately £2000 a week. Mr Benedikt thought it sensible to try to minimise the cost of security and had discussions with the property insurer. His witness summary states (I shall put it into the first person):
“[S]ometime in early 2012 REICH [the insurance broker] confirmed to me that, provided that certain measures were put in place, the 24-hour security presence could be dispensed with. To comply with [the insurer’s] requirements, I instructed VPS [a company specialising in vacant properties] to board the lower floor windows (the majority of which had been smashed) with steel security screens. Monitored intruder and smoke alarms were installed at the Property, again to meet [the insurer’s] requirements. [The insurer] also required a drive-round inspection on a fortnightly basis, which VPS arranged.”
[34]The extent of the security equipment installed by VPS appears from an email dated 28 May 2012 from VPS to Padwick’s receivers: 2 smart alarms; 2 smoke detectors; 2 security chains; 3 combination locks; 1 hasp & staple; and 43 openings secured. The mention of “openings secured” is explained by an email sent by VPS to Padwick’s bank in February 2012, which recorded that VPS had “installed steel security screens externally over the ground floor windows of the property”.[35]Mr Benedikt confirmed that he had no knowledge of, and was not responsible for either the removal of SCL’s signage from the Property or the placing of concrete blocks to prevent vehicular access to the car park. The annotated photographic report that SCEL produced upon handing the Property back to SCL’s administrators at the end of September 2011 indicates the likelihood that the removal of the signage was in fact the work of SCEL and had nothing to do with Padwick.[36]On 11 January 2012 Olswang LLP, which by then was acting for Padwick, sent a letter by email to Punj, making clear Padwick’s stance that the Lease was subsisting and that, in the event of SCL going into liquidation and its liquidators disclaiming the Lease, Punj would be called upon to take a new lease of the Property. The letter demanded payment of £461,459.67 said to be then due and owing under the guarantee.[37]On 30 April 2012 Mr Richard Crompton and Mr Adrian Phillips of Colliers International were appointed as the joint Law of Property Act receivers of the Property under a debenture held by Padwick’s bank. By a letter dated 1 May 2012 Mr Crompton notified the joint administrators of SCL of the appointment and said:
“All rents and other sums outstanding to your Landlord and all future rents and other sums due must be paid to us in the future or as we direct. Any monies paid to a third party other than us will not discharge your rent due, other obligations and the amount will remain owing.”
The letter asked for a mutually convenient time for an inspection of the premises by the receivers. By email on 10 May 2012 the joint administrators of SCL told Mr Crompton that they were unable to assist with the request for access to the Property, because the keys had been delivered up with an offer of an informal surrender of the Lease. The joint administrators suggested that Mr Crompton contact Padwick’s solicitors. He did so, apparently by telephone, that same day; the file note of his conversation with Mr Koehne records that Mr Koehne said that he had various keys that were handed to him when SCEL left site and that there had been “issues on site” and “some locks will have been changed”. Mr Koehne arranged to deliver the keys to Mr Phillips. He did so the following day, under cover of a letter dated 11 May 2012 which said:
“The keys were accepted for safe-keeping and not as any acknowledgment that their tenancy has been surrendered.”
[38]On 10 August 2012 Mr Crompton wrote by email to a Mr Thairani at Punj. The email referred to the Lease and to Punj’s guarantee and continued:
“Myself and Adrian Phillips were appointed as Law of Property Act Receivers of the property, a copy of my appointment is attached, and as such we are entitled to demand and collect all future rents due and all historic rents owing. As such I write to request an address to which demands for the rent owing from the June 2011 quarter date to September this year should be sent for payment.”
[39]Having received no reply to that email, Mr Crompton sent a further email to Punj on 15 August 2012, attaching a formal letter, which set out the receivers’ contention that Punj was liable under the guarantee and asked that any dispute of liability be notified by 30 August.[40]That letter brought a response in the form of a telephone call to Colliers International from “Dinesh” at Punj, who said “without prejudice” that Punj’s position was that liability under the guarantee terminated when the premises were vacated and the keys were handed back. However, no written response was given, despite efforts from Mr Crompton to chase a reply.[41]On 10 September 2012 Mr Crompton sent by email a letter to Mr D. Patel at Punj. Section 2 of the letter said that surrender by return of the keys would require consent “which has not yet been provided”. Mr Crompton again sought a proper written response to the claim under the guarantee. That was provided on 17 September 2012, which said that SCL, acting by its joint administrators, had surrendered the Lease by delivering up the keys under cover of the letter of 23 November 2011. On 20 September 2012 Mr Crompton replied:
“Simply returning the keys of a leasehold property to its landlord is not sufficient to effect a surrender by operation of law. Therefore, the lease continues in full force and effect, as does the guarantee provided by Punj Lloyd. Your bare assertion that there has been a surrender is not sufficient to support your claim. Accordingly, we refute your allegation that there has been a surrender of the lease by operation of law and invite you to now comply with your obligations as guarantor within seven days.”
The letter asked Punj to supply any evidence on which it relied in support of the contention that there had been a surrender, including in particular “any documents that evidence that the purported surrender was in fact accepted”.[42]On 11 October 2012 Colliers International circulated by email its Manchester Office’s latest disposals list for October 2012. The Property was included on the list. Disclosed emails show that when, on that day, Colliers International received an enquiry concerning the Property, they replied on 12 October:
“Full marketing of the property will commence next week. Particulars are currently being put together and I will send you a copy as soon as they are finalised. In terms of pricing, no guide price is being set and will be marketing on an ‘offers invited’ basis. The current rateable value is currently £750,000 listed as offices and premises. Although the receivers have held informal discussions with the local planning office, no planning application has been submitted.”
Three days later, on 15 October 2012, Colliers International gave a further response, attaching a copy of “the current marketing particulars” and inviting contact if the client wished to undertake a viewing. The marketing particulars show that the Property was being offered for sale as a “Long leasehold with vacant possession”.[43]The evidence of Mr Crompton, which I accept, is that the Property was marketed on the internet between 15 October and 26 November 2012 but was then removed from the market as a result of legal advice to the effect that continued marketing might jeopardise Padwick’s position vis-à-vis the guarantor, namely Punj.[44]The rest of the chronology can be taken quickly. On 27 February 2013 SCL was placed into creditors’ voluntary liquidation. On 14 August 2013 the liquidators gave notice of disclaimer of the Lease under section 178 of the Insolvency Act 1986. On 19 December 2013 Allen & Overy on behalf of Padwick gave notice to Punj under the guarantee, requiring it to take a new lease. On 10 February 2014 Punj replied to the effect that the Lease had been surrendered and that the surrender was evidenced by Padwick’s actions in boarding up the Property and in marketing it for sale. After some further correspondence, the claim form was filed on 15 May 2014.

Was there a surrender by operation of law?

[45]Punj’s case, as set out in the Amended Defence and developed by Mr Temmink in his submissions, is that a number of facts, taken in conjunction, show that there was unequivocal acceptance by Padwick of a surrender of the Lease on one of four alternative dates: first, at the end of September 2011 when SCEL went out of occupation and SCL were known to have no continuing presence or intention to be present at the Property; second, when the keys were handed back to Padwick on 23 November 2011; third, when additional security measures were implemented in early 2012; fourth, when the Property was marketed for sale in October 2012. Mr Temmink emphasised, and I bear in mind, that individual actions on the part of Padwick are not to be viewed in isolation; the totality of the facts at any one time must be considered. Mr Temmink identified fourteen particular matters—marked in his skeleton argument as (a) to (n)—that are said to show unequivocal acceptance by Padwick of the surrender of the Lease. It is unnecessary to recite those fourteen matters here; they are mentioned in their place in the foregoing narrative.[46]Punj’s primary case is that the Lease was surrendered by operation of law when SCEL vacated the Property at the end of September 2011. The way that the matter is put can be summarised as follows. Padwick knew that SCL had gone into administration in July 2011, was no longer carrying on business and would not itself be paying any further rent. It acquiesced in the occupation of the Property by SCEL and accepted without demur the rent that SCEL was paying via the administrators. Within a matter of a few days, it had changed at least some of the locks at the Property and permitted a round-the-clock “security presence” at the Property. This was in a context where Mr Benedikt had visited the Property in mid September in the company of letting agents. Taken together these matters show that Padwick treated the end of SCEL’s licence as marking the end of the Lease and regarded itself as having taken back possession from that point.[47]I reject Punj’s primary case, which in my view is plainly wrong. To begin with, SCEL’s occupation of the Property was not an indication that the Lease had already determined. SCL granted the licence to SCEL on the basis that it was and remained the tenant under the Lease and that the licence fee was payable to the administrators, not to Padwick, and would be in an amount equivalent to the continuing liabilities under the subsisting Lease. Padwick did not receive the rent from SCEL but from the joint administrators, from whom, on behalf of SCL, it was properly due. The fact that the departure of SCEL marked the end of any physical presence at the Property by or with the authority of SCL is certain, but the tenant cannot effect a surrender simply by vacating the premises.[48]The changing of locks at the demised premises does not of itself amount to unequivocal conduct by the landlord that is inconsistent with the continuation of the lease. In Relvok Properties Limited v Dixon (1973) 25 P&CR 1, the tenant vacated the demised premises without warning. A little while after learning of his departure, the landlords arranged for the locks at the premises to be changed. It was held that there had been no surrender of the tenancy by operation of law. Sachs LJ said at 5:
“[A]s 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. In the instant case the defendants have failed to discharge that burden. The landlords took a course which has rightly been described as ‘sensible’ from their own point of view.”
[49]This is reflected in the fifth of the propositions approved by Dyson LJ in Artworld at [29]:
“(5) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord’s interest in the value of his property, is a reasonable response to the tenant’s evinced intention not to perform the obligations of the tenancy...”
[50]In the present case, the evidence justifies no further finding than that some, not all, of the locks at the Property were changed for the purpose of securing the Property while it was vacant and vulnerable. Locks were not changed for the purpose of excluding SCL or of enabling Padwick to enter into the Property for its own beneficial use. SCL and Punj had been requested to make provision for the security of the Property and it was clear that neither had any intention of doing so. Padwick’s conduct was capable of being attributed to and was indeed due to a proper and reasonable desire to protect its own interests. As SCL and Punj retained liability under the Lease and the Deed of Guarantee respectively, their interests were also served by the protection of the Property.[51]I consider the position to be the same as regard the round-the-clock “security presence” at the Property. It is unclear what form that presence took; Mr Temmink suggested that a security guard may have been situated inside the building, but it is as likely on the evidence that there was a patrol outside. The uncertainty does not matter. A landlord may “protect the security of his premises and the state of their repair” by a number of measures, including changing the locks and engaging a security guard. In each case the question is whether he has gone beyond the protection of his interests and has unequivocally manifested an intention to have possession to the exclusion of rights under the lease; whether, in other words, he has done an act so inconsistent with the continuance of the lease that he is estopped from denying that it was at an end (cf. Oastler v Henderson (1877) 2 QBD 575, per Lord Cockburn CJ at 577). Mr Temmink appeared to submit that entry by a landlord onto the premises to effect security measures would necessarily be inconsistent with the continuance of the lease unless the entry were authorised by some provision of the lease. That is incorrect, as is shown by the juxtaposition of the fourth and fifth propositions approved by Dyson LJ in Artworld; this is why the decisions in cases such as Oastler v Henderson, considered below,have not been based on the need to find provisions in the leases to justify the landlords’ conduct. The question is simply whether, on the facts of the particular case, the landlord has gone beyond merely protecting its own interests by protecting the security of the premises. In my judgment, by the arrangements that it made in early October 2011 Padwick did not go beyond the protection of its own interests in securing the Property.[52]Mr Benedikt’s visit to the Property in the company of letting agents in mid September 2011 is relied on as part of the background rather than itself an unequivocal act inconsistent with the survival of the Lease, and I shall consider the relevance of marketing the Property in a different context.[53]Whether the various matters relied on be viewed singly or, as is right, in their totality, there was in the circumstances no unequivocal conduct on the part of Padwick at the time of the vacation of the Property that was inconsistent with the continuation of the Lease. On the contrary, on 22 September 2011 Padwick by its solicitors had made it clear that SCL and Punj would remain liable under the Lease. Everything that followed later that month and in October 2011 was consistent with that stance.[54]Punj’s secondary case is that there was a surrender by operation of law when the keys were delivered to Padwick’s solicitors on 23 November 2011. I reject that contention. The receipt of the keys by Mr Koehne was entirely consistent with a concern for the security of the Property and did not indicate anything in the nature of a retaking of possession from the tenant. The law is set out in the third of the propositions approved by Dyson LJ in Artworld at [29]:
“(3) Accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.”
In Oastler v Henderson, the landlords had accepted the keys from the agent of the tenant, who had left the premises with no apparent intention of returning. The landlords marketed and eventually re-let the premises. Lord Cockburn CJ said at 577-8:
“The plaintiffs then, by letting the premises to a new tenant, put an end to the defendant’s term from that date, for they thereby did an act so inconsistent with the continuance of the defendant’s term, that they were estopped from denying that it was at an end. But up to that date they had not done such an act, for they had not virtually taken possession of the premises; and in order to estop the lessors, so as to constitute a surrender by operation of law, there must be a taking of possession. I do not say a physical taking of possession, but, at all events, something amounting to a virtual taking of possession. The plaintiffs, the landlords, took the keys because they could not help themselves, the defendant being gone and, for all they knew, not likely to return.”
[55]Accordingly, the receipt of the keys by Padwick would not by itself be inconsistent with the continuation of the Lease. However, the matter goes further, because as I have found not only did Mr Koehne not intimate acceptance of the offer of a surrender contained in the letter of 23 November 2011 but he specifically told the administrators that he was accepting the keys for security but not by way of surrender. This position was understood by the administrators, as is shown by their progress report for the period 7 July 2011 to 6 January 2012. As Mr Jefferies observed on behalf of Padwick, it is notable that the tenant in this case has not asserted that there was a surrender and has acknowledged that the offer of surrender made upon the return of the keys was not accepted.[56]A second reason was advanced by Padwick why the delivery of the keys to Mr Koehne did not effect a surrender by operation of law, namely that he lacked authority to make a disposition of a property interest on behalf of his client. He did not have actual authority to receive the keys by way of surrender of the Lease—that is clear from his own evidence and that of Mr Benedikt—and, absent special circumstances, a solicitor does not have apparent or implied authority to make a contract for the disposal or acquisition of an interest in land on behalf of his client: James v Evans [2000] EGLR 1. I should have been inclined to accept that argument but, in view of my earlier findings, the point does not arise for decision.[57]The next matter relied on by Punj is the installation of additional security measures in early 2012, which again is to be viewed not in isolation but in the context of all that had gone before. This matter, again, falls squarely within the scope of the fifth proposition approved by Dyson LJ in Artworld. The question, identified by Sachs LJ in Relvok Properties, is whether the landlord has done more than protect its interests. In my judgment Punj has failed to show that Padwick did any more than act to protect the Property from a serious risk of damage, and thereby protect not only its own interests but those of SCL and Punj also, in circumstances where the tenant had shown clearly that it had no intention of having anything to do with the Property. Nothing that Padwick did was inconsistent with the survival of the Lease or estops Padwick from pursuing those liable under the Lease.[58]The final matter relied on by Punj is the marketing of the Property by Colliers International on behalf of Padwick in October and November 2012. This does not avail Punj. In Oastler v Henderson, Lord Cockburn CJ at 578 continued the passage set out above as follows:
“Then they try to let the house, but what else, under the circumstances, were they to do? They must do the best they could. If they had let the house, they would have done so as much for the benefit of the defendant as of themselves. The mere attempting to let does not amount to an estoppel. The landlords did nothing but what they might reasonably be expected to do under the circumstances.”
In my judgment those words are applicable to the present case. If the Property had indeed been re-let, the Lease would of course have been determined. But merely attempting to let does not give rise to an estoppel. It makes no difference that the Property was advertised with vacant possession. (It could hardly have been marketed on any other basis.) Padwick was in a position to take possession whenever it chose to do so. In fact, it has not chosen to do so.[59]Accordingly Punj’s contention that the Lease has been surrendered fails. Punj has pleaded no other defence to the claim for a decree of specific performance and I see no other ground on which such a claim ought to be denied.

The money claim

[60]The amount claimed as due at the commencement of the trial on Monday, 7 March 2016, was £4,070,708.19. This comprised: 1) Rent due for the quarter commencing September 2011 to the quarter commencing December 2015: £3,627,166.77 2) Interest due on that rent: £288,956.72 3) Money due in respect of insurance premiums: £141,434.04 4) Interest due on the insurance premiums: £7150.66 5) Reasonable costs of preparing the new lease: £6000 (inclusive of VAT)[61]Punj took three points of objection to the money claim.[62]The first objection was that the deed of guarantee made no provision for the payment of interest. There is nothing in that point. Paragraphs1.1 and1.2 of Schedule 1 provided a guarantee and indemnity in respect of all moneys payable by SCL under the Lease. It is not in issue that clause 3.5 of the Lease provided for the payment of interest on arrears of rent at a Prescribed Rate. No challenge has been made to Padwick’s calculation of interest. Two days’ further interest will presumably have accrued since the calculation was made.[63]The second objection was in respect of a sum of £45,176.74 in respect of insurance of the Property for the period 10 September 2011 to 9 June 2012. The objection related not to principle but to the intelligibility of the figures advanced and the adequacy of the documentary support for those figures. I do not propose to burden an already long judgment with a detailed analysis of the point. On the morning of the second day of the trial Mr Crompton, the LPA receiver, produced a schedule setting out how the figure had been arrived at. The schedule is coherent and is supported by documentation relating to the way in which the payment of an amount of £59,178.96 in January 2012 was calculated and made. After the receipt of a refund of £14,002.18 on the cancellation of the insurance policy during its term, the balance paid by or on behalf of Padwick was £45,176.78. That sum is accordingly recoverable by Padwick pursuant to clause 2.4 of the Lease, which provides for payment by the tenant of the full costs incurred by the landlord in respect of the insurance of the Property.[64]The third objection was in respect of the amount claimed for the reasonable costs incurred by Padwick in connection with the new lease. In short, Punj contends that, as the new lease proffered for its acceptance is practically identical to the Lease—the only alterations concerning parties, term and commencement—it cannot be reasonable to charge £5000 plus VAT for the work involved in preparing it. Mr Temmink submitted that in the absence of any evidence to support the claim I should make no award under this head; at most, £100 might be allowed to represent half-an-hour’s work by a trainee solicitor. I have some sympathy with Punj’s position on this point, but the submission goes too far. Paragraph 2 of Schedule 1 to the deed of guarantee makes it clear that only modest alterations to the text of the Lease will be required. However, it is likely to take a little time to be satisfied as to where those alterations must be made and to ensure that the coherence of the document is not compromised. This is, after all, a valuable property. There will also be some costs attendant on the execution of the new lease. There is no evidence as to what the costs are, and I think that I ought to do my best on the basis of the available documents, bearing in mind that it is for Padwick to prove its case. In my judgment the reasonable costs involved would be unlikely to fall below £1000 plus VAT, and I shall award that amount.