QFS Scaffolding Ltd v Sable & Anor

By a lease dated 31^st August 2001 (“the Lease”), the builders yard at the rear of 65 Church Street, Chalvey, Slough, Berkshire was demised for a term of 21 years from and including 31^st August 2001. The lessor was Mr Sable. In 2004, the reversion on the lease was assigned to Mr Sable and his wife. Mr and Mrs Sable are the Claimants in these proceedings and the Respondents to this appeal.

The lessee under the lease was London Demolition Company Limited (“LDC”). LDC carried on two businesses from the site; these were a demolition business and a scaffolding business. Joint administrative receivers were appointed in relation to LDC on 26^th January 2006. Prior to that appointment, two other companies had been formed, London Demolition (UK) Limited and QFS Scaffolding Limited (“QFS”). QFS was formed with a view to a possible take over of the scaffolding business of LDC.

For a lengthy period in 2006, there were negotiations between Mr Sable and a Mr Clifford of QFS on the subject of a possible new lease of the premises to QFS. Although those negotiations initially appeared to have gone well, they ran into difficulties at quite a late stage and no new lease has been granted to QFS. Instead, QFS approached the sole remaining administrative receiver of LDC who executed a deed assigning, or purporting to assign, the lease to QFS on 5^th September 2008.

In these proceedings, the Claimants claimed possession of the premises from QFS. The Claimants say that the Lease was surrendered by operation of law, that QFS was in occupation of the premises during the negotiations as a tenant at will, that this tenancy at will was determined by the Claimants so that they were entitled to possession.

QFS defended the claim. It says that the Lease was not surrendered and, indeed, that the lease has been validly assigned to it. At the trial in the Reading County Court, the sole issue was whether the Lease had been surrendered by operation of law. HH Judge Hamilton found for the Claimants and made an order for possession against QFS. QFS now appeals with permission granted by Patten LJ.

Mr Calland appeared on behalf of QFS and Mr Rosenthal appeared on behalf of Mr and Mrs Sable.

There is no disagreement between the parties as to the legal principles which are to be applied in this case.

Both parties accepted that the law as to surrender by operation of law is conveniently summarised in Woodfall’s Law of Landlord and Tenant, looseleaf ed., vol. 1, paras. 17.018 to 17.032.

The specific way in which the landlords put their case is that they say that they granted a tenancy (specifically, a tenancy at will) to a new tenant (QFS) with the assent of the lessee (LDC), so that the Lease formerly vested in LDC was surrendered by operation of law.

Rather than set out substantial passages from Woodfall, I will refer to the propositions which appear in Woodfall and which are relevant to the specific way in which the landlords put their case on this appeal. Sometimes the propositions in Woodfall refer to the position of a tenant and sometimes they refer to the position of a landlord. This is usually as a result of Woodfall referring to a decided case in which the principles were applied to the position of a tenant or a landlord, as the case may be. As the general propositions ought to apply to both parties, I will adapt the propositions in Woodfall to refer to the position of a landlord and of a tenant. Further, as these propositions are taken from a number of different paragraphs in Woodfall, there may be some element of repetition. The propositions are:

there is no legal distinction between a surrender by operation of law and an implied surrender;

the term surrender by operation of law is applied to cases where a landlord or a tenant has been a party to some act, the validity of which he is afterwards estopped from disputing, and which would not be valid if the tenancy had continued to exist;

the principle does not depend upon the subjective intentions of the parties but upon estoppel;

in this context, there is no estoppel by mere verbal agreement; there must in addition be some act which is inconsistent with the continuance of the tenancy;

in point of time, the surrender is treated as having taken place immediately before the act to which the landlord or the tenant is a party;

the conduct of the parties must unequivocally amount to an acceptance that the tenancy has ended; there must be either a relinquishment of possession and its acceptance by the landlord, or other conduct consistent only with the cesser of the tenancy;

it has been said that the circumstances must be such as to render it inequitable for the landlord or the tenant to dispute that the tenancy has ended;

an agreement by the landlord and the tenant that the tenancy shall be put an end to, acted upon by the tenant’s quitting the premises and the landlord by some unequivocal act taking possession, amounts to a surrender by operation of law; the giving and taking of possession must be unequivocal;

where the tenant requests the landlord to let the property to a third party, and the landlord does so, the lease is surrendered at the time of the new letting; the surrender does not take place before the time of the new letting; it is essential that the new letting is effected with the consent of the original tenant; if the original tenant does not consent or know of the new tenancy, there is no surrender; the original tenant’s consent may be inferred from conduct or from long acquiescence in the new arrangement;

a surrender by operation of law may take place where the landlord, with the original tenant’s consent, accepts a new tenant as his direct tenant; the consent of the landlord and the original tenant is needed.

I will offer some brief comments of my own on the above propositions.

The requirement that the conduct of the parties must be inconsistent with the continuation of the lease has been described as “a high threshold”: see Bellcourt Estates Limited v Adesina [2005] 2 EGLR 33 at [30] per Peter Gibson LJ. The above propositions stress that the conduct must be unequivocal.

A number of cases have stated that the circumstances must be such as to render it inequitable for the landlord or the tenant to dispute that the tenancy has ended; see, for example, Proudreed Limited v Microgen Holdings plc [1996] 1 EGLR 89 at 90D and Belcourt Estates Limited v Adesina at [19]-[21]. This proposition has also been stated in Woodfall (at para. 17.020). However, in the recent case of Artworld Financial Corporation v Safaryan [2009] EWCA Civ 303, it was said that this way of putting the proposition does not involve any separate inquiry into the equity of the matter; instead, if there is an unequivocal offering and taking of possession, then it will be inequitable (without more) for one party to deny that the tenancy has ended by surrender: see at [28] per Dyson LJ.

The authorities in this area all say that the underlying principle is one of estoppel. Where the conduct of a party is inconsistent with the continuation of the tenancy, that party is estopped from contending that the tenancy subsists. In general, the case law in this area has not involved a separate examination of questions such as reliance, or detriment, or change of position, or unconscionability, or whether the effect of the estoppel is temporary or permanent. It may be that the principles as to surrender by operation of law have evolved along their own path. The result which has been produced is that where both parties act on the basis that the tenancy has ended, the result will be that the tenancy has ended.

In the course of his submissions for the landlords, Mr Rosenthal relied heavily on what was said in, and what was omitted from, a report to creditors prepared by the administrative receivers of LDC. My Lord, Longmore LJ, asked Mr Rosenthal whether the landlords intended to rely upon general principles as to estoppel, which would have involved an investigation into matters such as reliance and change of position. Mr Rosenthal answered that he did not rely upon the general principles relating to estoppel but instead he relied upon the particular type of estoppel which is involved in the principles relating to surrender by operation of law, as described in Woodfall.

In view of the fact that both parties in the court below and in this court, and the judge in his judgment, relied exclusively on the principles relating to surrender by operation of law as described in Woodfall, it is not necessary to consider wider issues relating to estoppel.

In view of the submissions made in this court, it is necessary to set out the facts in a little detail and, indeed, in more detail than they were set out by the judge in his judgment.

I have already described some of the features of the Lease in this case. The initial rent was £20,472 p.a. Rent was payable monthly in advance on the first day of each month. There was provision for rent review every 5 years during the term. Clauses 3.34 to 3.39 of the Lease contained detailed provisions as to assignment, subletting and parting with possession. Clause 5.2 provided for forfeiture of the Lease in certain circumstances. The landlords had a right to forfeit in the event of the appointment of an administrative receiver: clause 5.2 (d).

On the same date as the grant of the lease, 31^st August 2001, Mr Sable entered into a rent deposit deed with LDC. This provided for LDC to pay a deposit of one quarter’s rent, £5,118. That sum was duly deposited. The landlords were entitled to draw on this deposit to pay themselves arrears of rent due under the Lease. In the event of the deposit being drawn on, LDC was obliged to make good the deposit.

On 26^th January 2006, a debenture holder appointed joint administrative receivers (Mr Knights and Mr Weir) (“the receivers”) of LDC.

Before the appointment of the receivers, two companies had been formed to become involved in the business carried on by LDC. These two companies were London Demolition (UK) Limited and QFS Scaffolding Limited (“QFS”). It is not clear whether, and if so when, London Demolition (UK) Limited had begun to make use of the premises. However, it is clear that before the appointment of the receivers, QFS had begun to make use of the premises.

On 9^th February 2006, the receivers wrote to the creditors of LDC, including Mr and Mrs Sable. The letter notified the creditors of the appointment of the receivers. The receivers stated that it was their duty and prime purpose to realise the property of LDC and to pay the proceeds of such realisations to the debenture holder in discharge of the secured debt. They stated that it was not their function to agree the claims of unsecured non-preferential creditors but they asked creditors to inform them of the amount of any debt owed by LDC. The receivers stated that LDC was continuing to trade.

In March 2006, Mr Sable contacted the office of one of the receivers. He sent him copies of the Lease and of the rent deposit deed and a schedule of rent arrears. He referred to taking steps to recover the property by reason of LDC’s breaches of the terms of the Lease. On 8^th March 2006, a Ms Farrow, on behalf of the receivers, wrote to Mr Sable, referring to the rent deposit and stating that the receivers hoped that the Lease would be transferred and in circumstances where the arrears of rent would be paid when the Lease was transferred.

On 15^th March 2006, Mr Sable went to the property and found that someone was in occupation. Later in March 2006, Mr Clifford of QFS told Mr Sable that QFS was trading from the premises.

On 28^th March 2006, Mr Sable wrote to the receivers stating that he had drawn on the rent deposit and that £65 remained on deposit. He stated that the next instalment of rent would fall due on 1^st April 2006.

There was evidence from one of the receivers that LDC stopped using the property in around late March or early April 2006.

On 19^th April 2006, Mr Sable wrote to Mr Clifford of “Quickfix Scaffolding Limited”. Mr Clifford had been connected with LDC but had not been a director of LDC. He was a shareholder in QFS, but again, not a director of that company. Mr Sable knew that Mr Clifford had been connected with the various companies that had occupied the property over the years. On earlier occasions when a lessee had got into financial difficulties and a new company had been formed to take over the business of the company in difficulties, Mr Sable had generally been able to negotiate with Mr Clifford on the grant of a new lease to the new company. So it was in April 2006 that Mr Sable contacted Mr Clifford to sort out the occupation of the property by the new company, QFS.

In his letter of 19^th April 2006, Mr Sable told Mr Clifford that the appointment of the receivers had led to a forfeiture of the Lease so that it was not possible for the receivers to assign the Lease. This statement was not accurate. The true legal position was that the Lease continued until it was determined. It would have been open to the landlords to have sought to forfeit the Lease but that would have required them to serve a notice under section 146 of the Law of Property Act 1925 and a claim to forfeiture may well have given rise to arguments about waiver of forfeiture (by reason of the landlords taking rent which was due after the appointment of the receivers and at a time when the landlords knew of that appointment) and about relief from forfeiture (to allow the receivers to assign the Lease, if they so wished). Nonetheless, Mr Sable genuinely believed that the lease had ended before 19^th April 2006 and he told Mr Clifford that this was the case.

In his letter of 19^th April 2006, Mr Sable asked Mr Clifford if QFS wished to take a new lease of the property. The letter also referred to a rental cheque and it seems that QFS had tendered a cheque for the rent for the month beginning 1^st April 2006. Mr Sable said that he would not present the cheque and he also asked Mr Clifford not to set up a standing order for the rent. That was something that could be arranged, if appropriate, during the course of any negotiations on a new lease.

On 25^th April 2006, the receivers sent a report to the creditors of LDC. The report was dated 20^th April 2006. A copy was received by the landlords. The report was sent pursuant to the duty upon the receivers under section 48 of the Insolvency Act 1986. Section 48(1)(b) requires the report to creditors to deal with “the disposal or proposed disposal by [them] of any property of the company”. This requirement was stated by the receivers in their covering letter which was sent with the report.

The report to creditors described the business of LDC. It referred to QFS. The report referred to certain assets of LDC. The scaffolding owned by LDC was a significant asset worth £325,000. The report stated that the most likely purchaser of the scaffolding was QFS. Other assets were valued at £6,250 or £6,500. These included fixtures and fittings. The report did not mention the Lease. The report stated that LDC had continued to trade after the appointment of the receivers. The report included a detailed estimated outcome statement, showing the estimated realisations and the various secured and unsecured creditors. That statement estimated that some £23,000 might be available for unsecured creditors, whose debts totalled some £500,000.

In the bundle of documents provided to the court, immediately following the creditors’ report is a list of creditors. However, this list is dated 27^th April 2006 which is after the date that the report dated 20^th April 2006 was sent to the creditors (on 25^th April 2006). The list of creditors includes the name of Mr Sable in the list of creditors but stated that no sum was due to him. It is not clear how the receivers came to make that statement. If the Lease had continued up to 27^th April 2006, then one month’s rent, due on 1^st April 2006 would have been due. There was no evidence before the judge about the receivers being told that QFS had tendered a cheque for that rent or that Mr Sable had said that he would not present the cheque. Similarly, the list of creditors is not consistent with LDC’s liability (if the Lease continued) to make up the shortfall in the rent deposit.

Also on 25^th April 2006, the receivers gave notice of a creditors’ meeting due to take place on 11^th May 2006. The landlords did not attend that meeting. We were told in the course of argument that there had been a conversation of some kind between Mr Sable and someone at the receivers’ office about the creditors’ meeting but neither party relied upon this conversation to advance its case and the judge made no finding about it.

On 26^th April 2006, Mr Clifford of QFS wrote to Mr and Mrs Sable in reply to the letter of 19^th April 2006. QFS stated that it would like to “continue with the lease” and referred to a discussion about the rent review. The terms of the letter are more consistent with a discussion about a transfer of the Lease but when the negotiations got under way what was discussed was a new lease to QFS.

Mr Sable met Mr Clifford of QFS on 16^th May 2006. They discussed the terms of a new lease to QFS. It is not clear how much was agreed between them at that stage. On 21^st June 2006, Mr Sable emailed Mr Clifford in terms which suggested that the amount of the rent had not been agreed at that stage. On 26^th June 2006, Mr Sable instructed solicitors in connection with a new lease to QFS. The solicitor’s note of his instructions recorded that the rent was “to be confirmed”. On 27^th June 2006, Mr Sable emailed his solicitor that the rent was agreed at £26,137.50 p.a.

The parties are agreed that at some point Mr Sable and Mr Clifford agreed that QFS would pay to the landlords a monthly sum at the agreed annual rate on account of QFS’ occupation of the property pending the grant of a new lease. In view of the fact that the rent was only agreed on 26^th or 27^th June 2006, this agreement must have taken place in late June 2006, at the earliest.

On 6^th July 2006, the landlords’ solicitors wrote to the solicitors for QFS and correspondence between the solicitors continued for some months thereafter. By the end of October 2006, the parties had still not entered into a new lease of the property.

Around that time, Mr Clifford was abroad on holiday. Mrs Sable telephoned him to complain that QFS had not been paying rent for the property. He agreed that when he returned from his holiday he would deal with the question of rent arrears.

On 4^th November 2006, the landlords wrote to QFS threatening to recover possession of the property so that it could be put on the open market. On 6^th November 2006, Mr Sable sent QFS an invoice for rent arrears and for a new rent deposit. The invoice referred to rent being due from 1^st April 2006. The invoice stated that the rent due for the period from April 2006 should be “lodged with” the landlords’ solicitors.

On 7^th November 2006, the solicitors for QFS emailed the landlords’ solicitors and stated that they assumed that the figures in the invoice would be required to be paid on completion of the new lease. On 8^th November 2006, the landlords’ solicitors confirmed that the monies could be paid on completion, although they expected that to occur in a matter of days.

On 9^th November 2006, a bookkeeper for QFS emailed the landlords’ solicitors stating that a cheque from QFS for one half of the amount in the invoice (the amount in the invoice included the sum due for the rent deposit) had been sent to the landlords’ solicitors. The bookkeeper asked that “the rental element” be sent to Mr Sable.

On 10^th November 2006, the solicitors for QFS asked the landlords’ solicitors for an undertaking that the sum sent by QFS would be held to the order of QFS’ solicitors pending completion. This request was repeated on 16^th November 2006. On 17^th November 2006, the landlords’ solicitors undertook not to release the monies to the landlords until completion. There were then further communications between the solicitors as to the precise form of any undertaking.

On 6^th December 2006, the solicitors for QFS emailed the landlords’ solicitors stating that QFS had forwarded the balance of “the completion monies”.

Completion did not take place in December 2006. What seems to have happened is that Mr Sable realised that the draft lease that had been sent out by his solicitors contained two major omissions. It did not contain a landlord’s break clause and it was not excluded from the security of tenure provisions of the Landlord and Tenant Act 1954, Part II. The judge accepted evidence given at the trial that these matters had been initially agreed between Mr Sable and Mr Clifford. Mr Sable contacted Mr Clifford to discuss the re-introduction of these two provisions.

In February 2007, QFS was advised by its solicitors that the Lease (dated 31^st August 2001) had not been determined. Accordingly, they approached Mr Weir, one of the receivers, and asked him to agree to assign the Lease to QFS for a nominal sum. There were inconclusive telephone conversations between the solicitors for QFS and the receivers in March and April 2007.

In around March 2007, Mr Sable received a cheque from QFS for one month’s rent, probably for February 2007. The cheque was payable to Mr Sable but he sent it to his solicitors to hold with the other monies advanced by QFS some months previously. In April 2007, the landlords changed their solicitors.

In May 2007, the receivers confirmed to QFS’ solicitors that they would assign the Lease to QFS.

On 4^th June 2007, the landlords’ new solicitors wrote to QFS stating that QFS occupied the premises as tenants at will and notice was given to determine that tenancy at will. QFS was told to vacate prior to 18^th June 2007. The letter stated that QFS owed rent since 1^st April 2006 and referred to the monies paid the previous year and also cheques for some £6,500, about three months’ rent, which monies would now be used to pay the rent which was owed.

On 6^th June 2007, QFS’ solicitors replied stating that the Lease was still in existence and would be assigned by the receivers to QFS. There was then considerable correspondence between the solicitors as to the legal position.

On 7^th July 2008, QFS’ solicitors wrote to the landlords’ solicitors requesting consent to an assignment of the Lease. We were not shown any response to that letter.

On 29^th July 2008, the landlords brought the present proceedings against QFS. It was pleaded that the Lease had been impliedly surrendered.

On 5^th September 2008, LDC acting through Mr Weir, who was by then its sole receiver, executed a deed which assigned, or purported to assign, the Lease to QFS for a premium of £1.

In his judgment, the learned judge summarised the evidence that had been given. He directed himself that when he came to consider whether the conduct of the lessee was inconsistent with the continuation of the tenancy, he had to have regard to the conduct of the receivers of LDC, rather than the conduct of QFS. The judge referred to the receivers’ report to creditors and said that it was difficult to think that the omission of a reference to the Lease was a simple error or oversight.

The judge recorded evidence given by Mr Weir, one of the receivers, to the effect that Mr Weir knew that QFS was paying rent and that he believed that QFS was liable for rent from 1^st April 2006. Later in his evidence, Mr Weir said that he did not know what rent QFS was paying and he assumed it would be at the rate reserved by the Lease. The judge accepted that Mr Weir might well not have known what rent was being paid. The judge held that the receivers were content to let QFS “relieve them of their liability to pay rent under a lease which did not appear to them to have any value which they could realise for the creditors”.

The judge set out passages from paragraphs 17.018, 17.020 and 17.030 of Woodfall and he then said:

The parties are agreed that for there to be a surrender by operation of law in the present case the conduct of the landlords and of LDC must have been unequivocally inconsistent with the continuation of the Lease. There are therefore two questions: first, was the conduct of LDC unequivocally inconsistent with the continuation of the lease? and second, was the conduct of the landlords unequivocally inconsistent with the continuation of the lease?

The judge does not seem to have dealt with the second of the above questions. It may be that there was no real argument before him about that question. However, on this appeal, QFS has raised both questions and has submitted that the conduct of neither LDC nor the landlords was unequivocal in the way required. At the hearing of the appeal, the submissions focussed on the first question and comparatively little was said about the second question.

As regards the conduct of LDC, the judge directed himself that the conduct of QFS and of Mr Clifford in particular was not the conduct of LDC. The landlords have served a respondent’s notice challenging that finding but Mr Rosenthal did not develop that point in his oral submissions. In my judgment, the judge was plainly right that the conduct of QFS and of Mr Clifford was not the conduct of LDC. QFS and Mr Clifford did not purport to be acting for LDC and the receivers of LDC did not hold them out as having any authority to act for LDC.

The landlords’ case on this appeal proceeds by the following steps. The first step is that the landlords granted a tenancy at will to QFS. The second step is that LDC, through its receivers, assented to the grant of that tenancy at will. It is submitted that their assent is shown by four matters: first, the receivers knew of the existence of the Lease and of its terms; secondly, the contents of the receivers’ report to the creditors reflected their view that LDC was no longer liable under the Lease; thirdly, the receivers were aware that QFS was paying rent to the landlords and believed that the liability for rent was that of QFS and not of LDC; and fourthly, the receivers knew that the Lease had not been assigned to QFS.

I question the first step in the above reasoning. It is true that it was common ground before the judge, and before us, that if (I stress “if”) the Lease had been surrendered the conduct of the landlords and of QFS would have justified the implication of the grant of a tenancy at will. Alternatively, the right implication might be that QFS was the licensee of the premises during the course of negotiations. The circumstances in which it is appropriate to imply a tenancy at will or a licence are discussed in Javad v Aqil [1991] 1 WLR 1007, in particular at 1013B-D. The court could imply a tenancy at will or a licence where some such implication is needed to explain the presence of QFS in the premises when the landlords were not treating QFS as being unlawfully in occupation. It must be emphasised that the implication of a direct tenancy at will or licence from the landlords to QFS is only appropriate where there has been a surrender of the Lease, or some other way in which the Lease had been determined.

Where there has not been a surrender (or other determination) of the Lease, in my judgment, it would not be right to imply the existence of a direct tenancy at will or licence from the landlords to QFS. If the Lease has not been surrendered or otherwise determined, then it continues to exist. The landlords are not entitled to possession; the lessee is. The landlords are not able to grant a tenancy at will or a licence to QFS which entitles QFS to go into occupation. If the Lease had not been surrendered or otherwise determined, the position would be that the landlords are subject to the Lease, the lessee is entitled to possession and the lessee has not taken any action against QFS which has used the premises, initially together with LDC and latterly alone. The fact that the landlords and QFS then negotiate upon the grant of a new lease to QFS, which new lease is not in the event granted, does not support the implication of a direct tenancy at will or licence from the landlords to QFS.

If, therefore, the implication of a tenancy at will or a licence is only appropriate where there has been a surrender, it seems to me to be the wrong starting point to assume the existence of a tenancy at will and then to go on to ask whether there has been a surrender. That process involves assuming the answer “yes” to the question (has there been a surrender?) and then going on to pose and attempt an answer to that very question. One is assuming the answer to the question before one starts.

The position in the present case is very different from the cases discussed in Woodfall at paragraphs 17.030 and 17.031. Those cases proceed on the basis that it can clearly be seen there is a new letting of the premises. In such a case, where the original tenant requests that the new letting takes place, or otherwise unequivocally assents to it, then there is an implied surrender immediately before the new letting. This implication of a surrender is made because there is a plain inconsistency between the existence of two incompatible tenancies, namely, the original tenancy and the new letting. The coming into existence of the new letting with the assent of the original tenant means that one must imply that the original tenancy has ended. The time at which it is appropriate to make that implication is immediately before the new letting takes effect and the implication is for the purpose of enabling the new letting to be effective.

In the present case, the landlords and QFS were in negotiation for the grant of a new lease. In the event, a new lease was not granted. One did not get to the point of time immediately before the grant of a new lease at which it would or might be appropriate to imply that any earlier incompatible tenancy must have been surrendered. Mr Rosenthal has, somewhat ingeniously to my mind, put forward an analysis to the effect that there was a new letting after all, not the proposed new lease but the implied tenancy at will. As I have endeavoured to show, this alleged new letting assumes the answer to the question as the premise of the very question that has to be asked.

There is a further difficulty with the way that the landlords put their case. Mr Rosenthal stated that the tenancy at will came into existence in, and not before, late June 2006 when the landlords and QFS agreed that QFS would pay monthly sums on account of its occupation during negotiations for a new lease. He submitted that the Lease was surrendered by operation of law at that point, and not before. However, there is no evidence that the receivers were aware of this arrangement. There was some generalised evidence, referred to by the judge, that the receivers thought that QFS was paying rent to the landlords. I have set out in some detail the arrangements which were made as to the making of payments by QFS to the landlords. In the latter part of 2006, it was agreed that QFS would pay certain sums in readiness for completion of a new lease and the sums in question would be referable to QFS’ occupation since 1^st April 2006. The actual position in relation to payments by QFS was different from the arrangement apparently agreed in late June 2006 and so, even if the receivers had been aware of the actual facts as to the payment of rent, that would not have led them to be aware of the arrangements agreed in June 2006 on which Mr Rosenthal heavily relied.

In my judgment, the real question in this case is whether the conduct of LDC in stopping its use of the property, leaving QFS behind in the property, not offering to pay any rent, not acknowledging any liability for rent, and not referring to the Lease in any way, at a time when it knew that the landlords were negotiating a new lease of the property with QFS, is unequivocally inconsistent with the continuation of the Lease.

The second part of Mr Rosenthal’s submission was to the effect that LDC had assented to the grant of a tenancy at will to QFS. I will consider how he put his case in this respect but, of course, without assuming that a tenancy at will was in existence.

Mr Rosenthal submitted that the receivers knew of the existence of the Lease and that it had not been assigned to QFS. That is clearly right. He then relied upon the contents of the receivers’ report to creditors in April 2006. He said that this report unequivocally contained a statement that the Lease was, by that date, no longer in existence. There is obviously some force in what he says. The report does not mention the Lease. It does not mention any liabilities under the Lease. It refers to Mr Sable, but says that nothing is due to him. Do the contents of the report amount to an unequivocal statement that the Lease was at that date no longer in existence? In my judgment, the reaction of a reasonable reader who knew of the earlier existence of the Lease would be that the report failed to deal with the Lease and therefore failed to make clear what the receivers’ position was in relation to the Lease. I regard the message sent by the report as ambiguous and therefore not unequivocal. In this regard, it is important to note that the report is being relied upon for what it did not say, rather than what it did say. The reaction of a reasonable reader would be: well what is going to happen to the Lease? The reasonable reader might well have certain expectations but they would fall short of an understanding that the receivers were conducting themselves on the basis that the Lease had already ended. The reader would think that the receivers were not placing any value on the Lease. The reader might expect that if the landlords approached the receivers suggesting a surrender of the Lease, they would be open to that suggestion. The reader might think that the receivers were not expecting to make payments to unsecured creditors and, in particular, were not expecting to have any funds to pay the rent as it fell due. As against that, the landlords knew that as recently as 8^th March 2006, the receivers had referred to a hope that the Lease would be transferred and that the arrears of rent would be paid on completion of the transfer. The landlords might also be puzzled by the fact that no sum was said to be due to Mr Sable. However, rent had been paid up to the end of March 2006 and Mr Sable was holding a rent cheque for April 2006, admittedly a cheque from QFS and not from LDC.

In any event, the contents of the receivers’ report is not said by the landlords to be an act which is inconsistent with continuation of the Lease so as to result in an implied surrender as at that date. As I have explained, Mr Rosenthal said that the relevant act was the grant of the tenancy at will (by implication) in late June 2006 and that the Lease continued up to that date and then ended.

Further, Mr Rosenthal did not say that the contents of the report were a representation on which the landlords relied and changed their position to their detriment so that it would now be inequitable to allow LDC to go back on the alleged representation. My conclusion that the contents of the report did not contain a clear and unequivocal representation that the Lease had ended would be fatal to such a submission. In addition, the question of reliance and detriment were not really separately examined at the trial and the landlords do not have findings of fact in their favour on those matters. It might be open to serious question whether Mr Sable did rely on the contents of the report because, on 19^th April 2006, before the report, he seems to have satisfied himself for separate reasons that the lease had ended, irrespective of the receivers’ intentions on that subject.

Mr Rosenthal also submitted that the receivers knew that QFS was paying rent to the landlords. The judge made somewhat generalised findings about what the receivers knew. He did not spell out when the receivers knew about payments of rent. In the later correspondence, there are statements made to the receivers to the effect that QFS was paying rent to the landlords. It may be that the receivers’ knowledge dated from the later period of the negotiations. I can well imagine that the receivers suspected that the landlords and QFS would discuss what new arrangements should be put in place. But this is not a case where the receivers were a party to the negotiations nor were they kept informed by either the landlords or QFS. In those circumstances, the receivers’ position was one of inactivity and lack of involvement, coupled with some element of suspicion or even knowledge that arrangements were being discussed between the landlords and QFS. The receivers also seemed to have known that QFS was in occupation of the property and that the landlords were not objecting to that fact.

Before coming to my own conclusions, I will refer to how the judge put matters in the passage from his judgment which I have quoted above. The judge said that he was applying the legal principles to the facts that he had found. However, with respect to the judge, in the critical passage, he asserts that the requirements for an implied surrender have been satisfied without identifying in much detail what precisely had led him to that conclusion. He assumed that a tenancy at will existed at the relevant time whereas, as I have endeavoured to explain, a tenancy at will would only have existed if there had been a surrender and that fact should not have been assumed as the starting point of the inquiry. The judge said that “in the context of this case” the fact that LDC stopped using the premises amounted unequivocally to an acceptance that the Lease had ended. I would not regard that fact, even taken together with all the other circumstances of the case, as sending an unequivocal message that the Lease had ended. When the judge said that the conduct of the receivers was consistent only with the ending of the tenancy, he does not identify the conduct he has in mind. I do not understand how the fact that Mr Sable drew on the rent deposit is in any way inconsistent with the continuation of the Lease nor how that fact makes it inequitable for the receivers to contend that the Lease continues. Finally, the judge said that the tenancy at will was created with the consent of the receivers. Again, that assumes the answer that there was a tenancy at will. Further, I do not think it can be said that the receivers knew enough to know there was a tenancy at will. Further, they took no action to indicate that they consented to that being so; they simply did nothing.

In my judgment, LDC acting through its receivers, was not a party to an unequivocal act which would not be valid if the Lease had continued to exist. The only act which is alleged to have taken place, to which it is said LDC was a party or to which it gave its consent, was the alleged grant of a tenancy at will to QFS. In this case, there was no new lease to QFS. Accordingly, the parties never reached the point immediately before the grant of a new lease at which time the question of an implied surrender might have arisen. At all relevant times, the landlords and QFS were in a state of negotiation only, even though they had agreed upon the rent and the essential terms of the proposed lease. The established general proposition that there may be an implied surrender immediately before the grant of a new lease indicates that the normal position is that standing by on the part of an original tenant, while the landlord negotiates a new lease with a prospective new tenant, even one who is in occupation of the property, will not give rise to an implied surrender.

As to the contents of the receivers’ report to creditors, I have already discussed the submissions made by the landlords in relation to this report. In my judgment, the report is not an act which is inconsistent with the continuation of the Lease; nor is it relied upon by the landlords in their submissions as the basis of an estoppel by representation. Further, whilst it is a puzzling document in some respects, I do not find that the omission to refer to the Lease amounts to a clear and unequivocal representation that the Lease had ended.

In the absence of unequivocal conduct on the part of LDC which would justify the conclusion that the Lease had been impliedly surrendered, this is not a case in which there ever was an implied tenancy at will or licence between the landlords and QFS. No question therefore arises of LDC assenting to the grant of a tenancy at will. Further, I do not think that the evidence supports the conclusion that the receivers knew of, and then consented to, the grant (even impliedly) of a tenancy at will.

I conclude that there was no conduct on the part of LDC which was unequivocally inconsistent with the continuance of the Lease. It follows that there was no surrender by operation of law.

I referred above to a possible second question: was the conduct of the landlords unequivocally inconsistent with the continuance of the Lease? In view of my earlier conclusion, this question does not arise. As we heard brief argument only on it, I would prefer not to deal with this question when it is unnecessary to do so.

I would allow the appeal and set aside the order (including the order for possession) made by the judge.

QFS counterclaimed for a declaration that the Lease remained in being and was vested in QFS. I have held that the Lease was not surrendered and we have not been told that any other event has occurred to determine the Lease. If the Lease remains in being then it was vested in QFS by reason of the deed of assignment of 5^th September 2008. The contrary has not been argued. The pleadings raise an issue as to whether the assignment of the Lease was a breach of the covenants against assignment save in certain specified circumstances. That point was not investigated at the trial nor on appeal. Any declaration to the effect that the Lease has been vested in QFS must make clear that there has not been a determination whether the assignment was, or was not, in breach of the Lease.

I agree.

I also agree.