When modifications to a lease are so incongruous with the continuance of the existing relationship that the law considers the existing lease to have been surrendered and a brand-new lease to have been created, this is known as a surrender and regrant. This may happen even if neither party intended for it to occur nor was aware that it was the consequence of their variation. In this article, Deed Of Surrender And Regrant, we take a look at the process and mechanism involved.
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Under what circumstances does a Deed of Surrender and Regrant not occur?
A decrease in the extent of demise or the duration of the term
A presumed surrender and regrant are not triggered when the extent of the demised property is reduced. A reduction in the term’s duration on its own should not automatically lead to a presumed surrender and regrant.
An increase or decrease in the rent
Merely modifying the rent amount is not sufficient to constitute an implied surrender and regrant. In a test case, the court ruled that a rent reduction did not necessarily signify the beginning of a new tenancy.
The Court of Appeal also ruled that a rent increase agreement between a tenant and landlord did not invariably necessitate the tenant to vacate the premises and the tenant to establish a new tenancy. Nonetheless, a presumed surrender and regrant will ensue if the rent increase or decrease is accompanied by a term extension or an improvement to the subject property.
Encroachment by the tenant
Simply encroaching upon land outside its demise does not constitute an implied surrender and regrant. Although the tenant is obligated to observe covenants and obligations pertaining to the encroachment as if it were part of its demised premises, the encroachment itself does not technically become a part of the demise.
Rectification prior to registration
In the event that the lease fails to accurately represent the intentions of the parties involved, they may have the opportunity to modify it while it is still being registered with the Land Registry or until it is submitted to the Land Registry.
In contrast, a deed of rectification will constitute a deemed surrender and regrant if the lease has already been registered at the Land Registry and the parties wish to correct an error, such as one in the lease plan or a typographical error that results in an extension of the registered demise or term. It is not possible to prevent a surrender and regrant by simply renaming the document “deed of rectification” instead of “deed of variation.”
What are the implications of a surrender and regrant?
In the event that a variation results in a surrender and regrant, the current landlord and the existing tenant shall enter into a new lease. Existing tenants and guarantors, as well as any guarantors who provided security for the current tenant, will be no longer be liable. Should the tenant contract the current lease outside the scope of protection provided by the Landlord and Tenant Act 1954, they will be entitled to complete security of tenure and renewal rights under the new lease agreement. In addition, if the current lease is older than the Landlord and Tenant (Covenants) Act 1995, the landlord may determine that a “new tenancy” replaces a “old tenancy” with full original tenant liability under that Act.
The requirement for tenants to stamp and register the new lease represents a potential problem. Depending on the remaining lease term and the amount of rent due, the new lease may be subject to a substantial amount of stamp duty and land tax. Nevertheless, in the event that the current lease was issued subsequent to the replacement of stamp duty with SDLT in 2003, overlap relief could potentially alleviate or eradicate the SDLT obligation.
Is it possible to avoid a surrender and regrant?
It is possible to prolong the duration of a lease without instigating a surrender and regrant by authorising a reversionary lease, which formally commences only upon the lease’s expiration. When the physical footprint of the demise is expanded, it is possible to obtain a supplemental lease for the additional area. Both of these solutions require the establishment of an additional lease; therefore, it is critical to interconnect the two leases to guarantee that they are consistently managed in tandem. Alternatively, it might be more advantageous to accept the surrender and regrant, thereby obtaining a single new lease for the extended or expanded demise.
How we can help
We have a proven track record of helping clients deal with Deeds of Surrender and Regrants. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of a Deed of Surrender and Regrant. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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