Surrender and regrant: a reminder to watch out

When making a variation in a lease you need to be sure that a surrender and regrant of the lease is not inadvertently brought about. This may be implied notwithstanding the intentions of the parties

If a surrender and regrant is implied by the terms of the variation, there are a number of implications including:-

· the new lease may be subject to Stamp Duty Land Tax and may require to be registered even though the old lease had not been registered

· any guarantor under the surrendered lease will be released

· if the surrendered lease was an old lease, made before 1 January 1996, the regrant will be a new lease so the landlord will lose the benefit of privity of contract against the tenant

· if the old lease excluded the security provisions of the Landlord and Tenant Act 1954, this will not be the case with the regrant

All in all, it pays to be careful. Case law has made it clear generally that a variation to a lease that causes an extension to the term or an increase in the premises demised will trigger a surrender and regrant.

The recent High Court decision in Coker-v- London Rent Assessment Panel at least shows that the courts are unwilling to extend the ambit of this rule. The variation arose from litigation relating to a residential lease. In that litigation the court ordered that the insurance rent would not be enforced and that there was to be a modification to the covenant against alterations. Were these changes enough to mean that the old lease had been surrendered?

The High Court held that there had been neither an increase in the area demised nor in the length of the term. Although this did not mean that there could never be a surrender in those circumstances, it would be exceptional. The changes made as a result of the litigation were not sufficient either taken separately or together to imply a surrender and regrant.

The decision shows that the courts are not generally willing to extend the occasions on which a surrender and regrant takes place.

However it is always necessary to consider whether variations that are agreed will have the effect of bringing about a surrender and regrant with the consequent problems that this will introduce.