Recent case law has reminded is that a surrender without the consent of the landlord’s mortgagee has no effect.
In the case of Co-operative Bank plc v Hayes Freehold Ltd (In Liquidation) & Others a tenant who had underlet premises found themselves in an awkward situation after falling foul of this legal requirement. The result of the decision left the tenant with a continuing liability for the tenant covenants (rent, repair etc) for the term without the benefit of an undertenant to cover these liabilities.
The case involved circumstances where both the lease and underlease were sought to be surrendered. However, the mortgagee of the freehold (Co-operative Bank) was not made party to the surrender deed.
The case asserted that the surrender of the superior lease had no effect due to the mortgagee’s consent not being sought. This was not the case for the underlease because the interest of its landlord (the tenant ) was not charged.
Whilst there are some limited statutory exceptions the general rule holds that a tenant needs to be just as much concerned, maybe more so, than their landlord where the landlord’s interest is mortgaged. In circumstances where the surrender fails then it is the tenant who will find themselves with rent and dilapidation liabilities from which they had believed they had been released.
In circumstances where a tenant is taking a new lease and a lease requires registration a tenant will be triggered to request consent in order to enable registration at the Land Registry. If the consent is not provided to the Land Registry then the legal interest will not be perfected: registration will either be barred by a restriction, or where no restriction exists, a note will be made against the lease that a bank’s consent was not provided.
For a surrender the trigger for bank consent does not exist for the tenant. The removal of a lease at the Land Registry does not require the tenant to provide the bank’s consent to the surrender but this does not remove the legal requirement for the consent to be sought.
In brief, tenant’s always get your landlord’s mortgagees consent!