You cannot create a new lease until the old lease has terminated. That was the straightforward message of the Court of Appeal in a case in which a company asserted it had a valid lease over a builder’s yard when the old lease had terminated ‘by operation of law’, allowing the lease to be assigned to it.
The landlord gave a lease over a builder’s yard to a company which operated two businesses from the premises. The company had financial problems, which led to the appointment of an administrative receiver. A new company, called QFS Scaffolding Ltd., was formed to take over one of the businesses and it occupied the builder’s yard. QFS commenced negotiations with the landlord, but no new lease was agreed. The administrative receivers then ‘assigned’ the existing lease to QFS.
The landlord considered the lease to have been surrendered. For this to be the case, there had to have been conduct by the landlord or tenant which was an unequivocal indication that the lease had been terminated and would not continue. In this case, the insolvent company had vacated the premises, had turned over occupation of the premises to QFS and had not paid or acknowledged the need to pay rent.
The landlord had continued to negotiate over the lease and had drawn on the rent deposit when the rent due was not paid. However, the landlord had not acted in any way that was inconsistent with the continuation of the lease.
In the view of the Court, the occupation of the premises by a third party was not inconsistent with the continuation of the lease. The landlord’s actions were also not inconsistent with the continuation of the lease.
Accordingly, the previous tenancy had not terminated by operation of law: it would not do so until steps were taken which demonstrated that it was terminated.