Early surrender of a lease

[Brent]

I am surrendering a lease early with the consent of my landlord. There is nothing in the lease that states that I am liable for my landlords legal fees in surrendering the lease early. Discussions with the landlord over the early surrender did not bring up the issue of these legal costs up until the landlord got his solicitor involved. I have had a letter from his solicitor saying that the landlord will accept surrender of the lease early as long as I pay his legal costs up to a level of £1500 + vat. This seems very hign and unreasonable to me. I am thinking of offering to pay his fees up to £500 + vat maximum as I cannot see what his solicitor has to do to warrent £1500 and I do not want to appear unreasonable as I do appreciate the early surrender. My solicitor is drawing up the surrender document and dealing with the land registry etc... Do you think I am being unreasonable

[jeffrey]

I am surrendering a lease early with the consent of my landlord. There is nothing in the lease that states that I am liable for my landlords legal fees in surrendering the lease early. Discussions with the landlord over the early surrender did not bring up the issue of these legal costs up until the landlord got his solicitor involved. I have had a letter from his solicitor saying that the landlord will accept surrender of the lease early as long as I pay his legal costs up to a level of £1500 + vat. This seems very hign and unreasonable to me. I am thinking of offering to pay his fees up to £500 + vat maximum as I cannot see what his solicitor has to do to warrent £1500 and I do not want to appear unreasonable as I do appreciate the early surrender. My solicitor is drawing up the surrender document and dealing with the land registry etc... Do you think I am being unreasonable

1. Problem: agreeing Heads of Terms of Surrender did not create a contract.Were L to have explicitly agreed at that time not to charge fees to you, for instance, the Terms would still be capable of change.
2. So: yes, L can now decide to charge fees to you. You do not even have power to challenge fees ("Remuneration Certificate") because the challenge procedure applies only to one's own solicitor.
3. But I consider that £1500 is extortionate for a short Deed of Surrender.

[hmmmmmmm]

my solicitor charged me £1,200+vat when my tenant surrendered his lease early.

the high cost usually reflects the negotiation work that the solicitor does, such as writing letters to the landlord and tenant, phone calls, all of which easily build up.

the deed of surrender would usually say legal costs and not mention a spacific amount, i assume the L's solicitor has only given you an estimate.

when my tenant got the bill, he told his solicitor it was too high and his solicitor said that all fees must be reasonably incurred i.e. they can't go overboard.

on that basis, my solicitor decided to reduce his charges, but he did say it was a goodwill gesture.

surely, only reasonable charges should be payable, otherwise the L's solicitor could charge £5,000 and the T would have to pay.



jeffery,

- is my view on the chargres having to be reasonable true?

- couldn't the T ask for an itemised breakdown of the L's solicitors charges?

[jeffrey]

What you say is true, but T cannot challenge legal fees of L's solicitor (or demand a breakdown of fees)- see my last post.

[hmmmmmmm]

Jeffrey

I dont mean to hijack this thread, but...

What if fees are incurred by a managing agent for example (e.g. for chasing arrears)?

Would the tenant still not be able to disupte them in this case?

Cheers


(I just though this point should be clarified because by agent charges my tenant large figures to sort out arrears and the like and I wasn't sure if it was challangable)

[jeffrey]

Chasing arrears: fees payable by T only if lease says so.
Surrender: fees payable by T only if Heads of Terms contain this requirement.

[hmmmmmmm]

1)
What I was trying to ask was: if the lease says that the T must pay the L's cost is chasing arrears, and the managing agent does this work, does the T have a right to challenge the managing agent's fees?


(I think it's an important point to clarify, because my agent, a rather large firm of chartered surveyors, charges large amounts to chase arrears. For example, on one occaison the T was two months late in paying rent and with phone calls, letters, e-mails, etc. the total cost the T had to pay was nearly £1k!!)

[jeffrey]

1)
What I was trying to ask was: if the lease says that the T must pay the L's cost is chasing arrears, and the managing agent does this work, does the T have a right to challenge the managing agent's fees?


(I think it's an important point to clarify, because my agent, a rather large firm of chartered surveyors, charges large amounts to chase arrears. For example, on one occaison the T was two months late in paying rent and with phone calls, letters, e-mails, etc. the total cost the T had to pay was nearly £1k!!)

No. L is entitled to indemnity, ie reimbursement of outlay, so agent's work for L is funded by T no matter how much. Only challenge would be by Court action.

[hmmmmmmm]

Only challenge would be by Court action.


If there can be a challenge by court action, then does that not mean the fees are challengable?

If so, then would it not follow that the fees would have to reasonable and an itemised breakdown would have to be provided, should it proceed to court? So naturally it would be best to provide the breakdown when asked by the T to avoid a court action.


(I don't mean to contradict you Jeffrey, I just don't see how fees that supposedly cannot otherwise be challenged, can be challenged by court action).

[jeffrey]

If there can be a challenge by court action, then does that not mean the fees are challengable?

If so, then would it not follow that the fees would have to reasonable and an itemised breakdown would have to be provided, should it proceed to court? So naturally it would be best to provide the breakdown when asked by the T to avoid a court action.


(I don't mean to contradict you Jeffrey, I just don't see how fees that supposedly cannot otherwise be challenged, can be challenged by court action).

What I meant is simply that:
a. you have no contract with L's solicitor/agent, so you cannot challenge their fees (eg Remuneration Certificate procedure applies only to one's own solicitor); but
b. you could refuse to pay L for being profligate with billing extravagantly (because safe in knowledge that you pick up tab), and - when L sues you - argue that any plaintiff (claimant) has a duty to mitigate loss.

[hmmmmmmm]

aaah, i guess the moral of the story is to send in the bailiffs, then the tenant couldn't do anything

a good solicitor would just charge loads of fees and then instruct a baillif if the T did not pay

a bit unfair, as the T has NO WAY to stop the L's solicitor or agent to charge what they like!!! i can foresee �1k per hour coming soon!!! (LOL)

[wotnot]

Hi, I need possesion of a retail shop I own so that I can sell it with vacant possesion. The current tenant has 5 years remaning of a 6 year lease and I was wondering if there is a standard calculation to work out what to offer them to give up their lease, my accountant has advised me that the revenue will be looking at this so I can't just pluck a figure out of thin air.

many thanks in advance

[jeffrey]

Effectively, you need to assess:
a. whether someone else might pay to T a premium for unexpired term (and, if so, how much); and
b. the amount of rent for unexpired term, so as to calculate its present-day value to you as a lump sum (accelerated to payment now as opposed to payment in instalments over five years).

More knowledgeable members can then use these details in assessing an appropriate and tax-efficient scheme.

[wotnot]

hhmmmm, not sure I understand. I have a buyer for the shop (who is willing to pay a premium) and the tenant is willing to move out but wants compensation for loss of income/relocation/re-fitting costs etc. which I am happy to pay. For reasons I can't go into the inland revenue will be looking at this transaction so I need to transparent and offer a 'market' amount in order to get vacant possession. I was just wondering if there was a formula or do I need chartered surveyor?

[jeffrey]

Your buyer is of course purchaser of a freehold or long leasehold.

My post related to any premium that someone might pay to T, for assigning his lease (unexpired five years)- not the same thing at all.

[wotnot]

Yes the buyer wants the freehold (vacant freehold).

[jeffrey]

Also, is the Business Letting protected by part II of LTA 1954?
That makes a difference to T's security and, probably, to how much you need to throw at him as inducement to go.

[dcfliming]

I have agreed to pay an amount to my Landlord to surrender a 12 year lease which has a futher 7 years to run. I asked him to prepare a surrender of business lease document.
His reply was ", it would be more economical to document any agreement between the parties by a simple letter. Given that you have vacated the premises we can do this by a surrender by operation of law, which does not need any formal documentation. However, for the sake of avoiding any future arguments, we can exchange letters confirming that:

a) the lease is surrendered by operation of law
b) the sum paid by your client is in settlement of any claim under the lease.

We do not need to spend hundreds of pounds drafting, negotiating and completing a formal surrender document."

I do not mind not agreeing to this if all liability for rent, delpidations or any other clauses under the lease are nullified

[jeffrey]

His proposal is unacceptable. A letter is inadequate.
To extinguish a legal estate necessitates a Deed; that is the only way to close the leasehold title at HMLR, too, if leasehold is registered.
The Transfer Deed can be very short and should cost no more than £300 inc. VAT (+any HMLR fee).

[dcfliming]

This is the latest letter I have received from the landlords agent. What is your advice ?:
Your information in incorrect. There is an established principle under common law that a lease can be surrendered by operation of law. The classic example of this is where the tenant vacates the premises and the landlord takes back possession. I have surrendered countless leases this way and in similar circumstances. By way of additional comfort to your client, my client is happy to confirm the arrangement to your client in an open letter, which will also state that your client is released from his obligations/liabilities of the lease upon receipt of the agreed sum and my client confirming the surrender. Further, your lease is not registered at Land Registry as it was granted in 2002 for a term of 12 years. Only leases of 21 years were registrable in 2002. Your lease is however noted in my client's title and needs removing. This will require an application accompanied by a cheque for £40 plus a Statutory Declaration. I attach some notes from the Land Registry which state how this needs to be done. Given that it is your breach which has put us in this situation, I presume you will be happy to draft the Stat Dec. If you have any problems with this, please let me know asap.

I strongly suggest that we proceed in this and reiterate that a deed is not required.

[jeffrey]

1. See my CONV. thread re 'How a lease ends'.
2. Surrender by operation of law is possible, true, but you need to bind L not to take any further action against you.
3. Without a Deed, his letter might not be not legally binding. However, at least the consideration [see CONV. thread re what this means, if you're unsure] supporting it could enable you to argue in Court that L is bound contractually- this depends on how the letter is worded.

[happytenant]

My landlord has agreed to take my shop back early (2 years left on lease) through a surrender deed.

After a bit of tooing and froing between both solicitors, he has agreed to take it back in the condition it is in now - pretty good to be fair.

How do I protect myself so that when we do leave in six months he can't say it has deteriorated?
Obviously I will be ensuring the building doesn't worsen.

Am I best to instruct a surveyor to complete a fresh schedule of conditions?
How can I give it to the landlord - deliver by hand, give to his solicitor????

We have just signed the agreement today and it has got me thinking.

[Editor]

Sounds like the landlord has been very fair indeed so I would be very careful about doing anything which may irritate him into changing his mind.
I would let sleeping dogs lie as there's not much you can do to prevent him serving a schedule of dilapidations if he decides to do so.
Just keep the condition up to scratch re the original schedule of condition and the lease terms. Have a schedule done if you must but I would keep it to myself.

[jeffrey]

The Deed of Surrender will be in full and final settlement. L should covenant not to take any further action against T, once lease is terminated on surrender (but what "Agreement" is it that T has just signed- an Agreement to Surrender [may not be legally enforceable (see s.38A(3) of LTA 1954 for when this is so] or the Deed of Surrender itself)?

[angenlynd]

We are tenants in a 10 year lease of a pub. We have served 4 years of that lease, but want to come out of it. We have been told that we can simply hand the keys back and that would be the end of it, but we have money tied up in fixtures and fittings and a £10,000 deposit.

If we handed the keys back with notice and we left no arrears of rent etc. would the brewery have to pay us back the deposit and pay us for the fixtures and fittings?

What would be the best way to get out of the lease without losing too much money?

[davidjpowell]

As the brewery is effectively letting you leave early I would be surprised if they envisage giving you cash. I guess if they are your fixtures and fittings there is nothing to stop you selling them off before you leave.

Otherwise you could try and sell the lease, but in the current climate without good accounts I suspect that you would be unlikely to achieve a premium. The brewery offer may, in reality be a good one.

[jeffrey]

We are tenants in a 10 year lease of a pub. We have served 4 years of that lease, but want to come out of it. We have been told that we can simply hand the keys back and that would be the end of it
No, you also ought to ensure that you and L execute a Deed of Surrender. That will bind both parties conclusively and avoids the possibility of any future claims against you by L or its successors.

[mo-786]

How is the best way for a tenant to surrender a commercial lease, Landlord is ok for this to happen, I've seen various 'surrender lease' documents on the net to buy for £20-£30 are these good to use or does it have to go through a solicitor. I am the landlord and tenant has mentioned he wants out, I'm ok with this. tenant is a ltd company.....Is 'surrender lease' document same as a 'Deed of surrender' document.....some guidance would be appreciated.

The lease is for 5 years, with a break clause in year 3

Can I serve a Section 21(b) as an alternative if tenants agrees.....which is the best and full proof way.

[jeffrey]

There is no such thing as a 'Surrender lease". Surrender of a lease is efected by a Deed of Surrender. A s.21 Notice:
a. merely indicates L's intention to seek possession;
b. does not end a lease or tenancy; and
c. applies only to an AST (not a commercial lease).

[Richard Green]

The cheapest method (although not ideal) is “surrender by operation of law”, in which no documentation is involved. The tenant vacates, hands over the keys and the original lease and the landlord hands over the counterpart lease. As always at the end of a lease, the issue of dilapidations needs to be addressed.

[mo-786]

Would it be safe using one of these documents which I found searching the net


http://www.questbrook.co.uk/Surrender.htm

[Lawcruncher]

Would it be safe using one of these documents which I found searching the net

http://www.questbrook.co.uk/Surrender.htm

No idea.

If your case is entirely straightforward here is a precedent you can use:

A Deed of Surrender dated [ ] 2009

1. Parties

1.1 The Tenant: [insert tenant's full name and address]

1.2 The Landlord: [insert landlord's full name and address]

2. Definitions

In this Deed:

2.1 "the Lease" means a Lease dated [insert date] made between the Landlord (1) and the Tenant (2)

2.2 "the Premises" means as more particularly described in the Lease

2.3 "the Tenancy" means the tenancy of the Premises arising under the Lease and all other (if any) the estate right and interest of the Tenant in the Premises

2.4 "the Tenant's Obligations" means the obligations of the Tenant arising under the Tenancy

2.5 "the Landlord's Obligations" means the obligations of the Landlord arising under the Tenancy

3.[B] Surrender

The Tenant surrenders the Tenancy to the Landlord

4. Acceptance

The Landlord accepts the surrender

5. Mutual Release

5.1 The Tenant releases the Landlord from the Landlord's Obligations

5.2 The Landlord releases the Tenant from the Tenant's Obligations

7 Deed

This instrument is executed by the parties as their deed

[To be printed in duplicate one copy to have at the end:]

Signed as a deed by the Tenant
in the presence of

[and the other:]

Signed as a deed by the Landlord
in the presence of

[Each party should sign opposite the "signed as a deed" wording in the presence of an independent witness who should sign and write his or her name and address underneath the "signed as a deed" wording]

***

Upon being satisfied that you will get possession of the premises, both parts of the deed should be dated with the same date. The tenant should hand to you the part he has signed and you should then hand to the tenant the part you have signed.

If the above proves useful I politely request you make a contribution to a cancer charity.

N.B. For the record and for the avoidance of doubt there is no relationship of lawyer and client between us and I owe you no duty of care. You use the form entirely at your own risk. For full professional advice backed by indemnity insurance consult a solicitor or a licensed conveyancer.

[mo-786]

Thank you LawCruncher for taking time in putting forward a draft deed of surrender.

As I've been reading notes from Jeffery from other threads, before I serve the deed of surrender, do I need to give notice as set out in the The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, Schedule 3 : http://www.opsi.gov.uk/si/si2003/20033096.htm, and do I have to get Schedule 4 completed and finally signed by an oath commissioner as the witness.

[Lawcruncher]

No such notice needs to be given. They relate to an agreement to surrender, i.e. an agreement to surrender at a later date. The above is a deed of surrender and actually effects the surrender.

[SALL]

Lawcruncher, just a question out of interest.

Would it make a difference if both copies of the Deed were signed by the LL and the tenant? And tenant keeps one and LL keeps the other. Instead of what you have suggested below.


[To be printed in duplicate one copy to have at the end:]

Signed as a deed by the Tenant
in the presence of

[and the other:]

Signed as a deed by the Landlord
in the presence of

[putney]

My husband and my friend bought a shop 4 1/2 years ago and we put my sister on the lease thinking (stupidly) that we were protecting money that she had lent to them for buying the shop. My friend has walked out on the business, still owing (jointly with my husband) money to the bank and to my sister. We have been left with the burden of working the (non-profitable) shop and paying the debts back. We have tried to sell the shop to no avail, no one wants to buy a shop with such high rent and rates. We can't walk away because the landlord will look to my sister for the rent of £18ooo + VAT per year for the remaining 7 years of the lease. My (ex) friend has no assets and nothing to lose, the same with my husband. I need to find a way out so that we can leave the shop without my sister being chased for this high rent, she has 2 houses and a good job and this will ruin her financially. My husband is working 100 hours per week and we are still having to put our own money in to keep the bills paid. Has anyone got any ideas for this terrible situation? Thanks

[jeffrey]

1. Did you enter into this mess without legal advice? If so, why?
2. When you say 'bought', was the purchase just a short lease not at a premium [price]?
3. Was the lease new or existing?

[putney]

It was an existing renewable lease that had 12 years remaining when we bought it. We paid £25000 for the lease and £50000 goodwill and equipment. This was a trading business with a high turnover.
We did not seek legal advice about this particular matter. We did have solicitors acting on our behalf but the business was very very busy and we never imagined we would end up in a situation like this. My husband and his business partner managed to ruin the business within 6 months of buying it. This is entirely their own fault but I am hoping there is some legal loophole or some "ducking and diving" that we can do to get out of it. I did not mention before but the lease is for a shop and a flat. The landlords have previously taken back the flats from other shops that they own on the street (they own the whole stretch) in return for a deduction in the rents. Is there any way we can use this to help us at all?
thanks

[jeffrey]

Sad to say, you are all the authors of your own misfortune. The whole reason for obtaining detailed professional legal advice in advance is to minimise the risks of things going awry. Quite possibly the problems would not have arisen if all concerned had fully understood the rights and (more important) the obligations with which they have now been almost inescapably lumbered. All that they can do is either:
a. to seek an assignee prepared to acquire the lease (subject to L's consent); or
b. to try and negotiate a surrender to L (who, of course, is in no way obliged to dig them out of their hole).

[Moderator1]

Several largely-identical questions on separate threads have been merged into this thread (hence the repetitive nature of answers).

[Always Problems]

I think that you are being unreasonable. I assume that it is business premises. Circumstances for both tenants and landlords vary greatly but leases dont. A landlord on providing say a 10 year lease should expect a litigation free 10 year period where all he has to do is receive the rent. I rented property on a 21 year lease, after 8 years I inherited another business and I wanted to surrender my lease and go. My landlord (a high street bank) refused, and said " my contract is for another 13 years" and is not that the position you are in. If you have been asked to pay his solicitors costs you should pay them and think yourself lucky that he does not ask for compensation for breach of contract. Or am I wrong

[Always Problems]

Sorry "putney" you didn't buy a shop. You bought a lease which allowed you to trade from retail premises for a number of years. What you may have bought is the outgoing tenants valuation as to what they thought their lease was worth if they put it up for sale. Anyway when you bought the shop was it on a lease assignment, are there any break clauses, can you get a chartered surveyor to try and negotiate a rent reduction, can you contact a firm of Business For Sale agencies(like Daltons Weekly) is full of and advertise your business for sale, but not asking an ingoing.