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Lease Surrender Relieves Obligation to Reinstate

3rd January, 2013

The post-Christmas period is traditionally a tough one for retailers, and commercial landlords are well aware of the likelihood that tenants will have difficulty in the winter months. Where these problems result in the insolvency of a corporate tenant, it is common for the liquidator to surrender the lease of the commercial premises involved.

Recently, the case of Re Teathers Ltd. (in liquidation); Baroque Investments Ltd. v Heis and Another [2012] EWHC 2886 (Ch) was heard relating to just such circumstances, the argument being over the ‘reinstatement’ clauses in the lease. The landlord argued that the tenant (now in liquidation) was still liable to reinstate the premises according to the termination provisions of the lease. The liquidators of the tenant argued that there was no liability.

The tenant had significantly altered the premises and the cost of reinstatement was estimated to be in excess of £1 million. There was also a substantial claim for failing to keep the premises in good repair.

Under the leases and the licences granted to alter the premises, the reinstatement obligation was, in effect, deemed to arise at the end of the term of the lease, which was the end of the original lease term, not the end of the lease brought about by the early surrender. The High Court ruled that both parties to the lease were therefore relieved of such of their obligations under it that post-dated the surrender. Accordingly, the tenant was relieved from the liability for reinstatement because that obligation was a future obligation at the date of the surrender.

Landlords faced with insolvent tenants should take advice as soon as possible to ensure that any agreements made with tenants’ liquidators or receivers protect their rights as far as possible.

Contact Simon Ellis at [email protected] for advice and assistance on Commercial Property matters and landlord and tenant issues in particular.

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