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constructive disclaimer


This is an example of constructive disclaimer. This document is useful for studying constructive disclaimer.

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									Possession – the constructive approach
Paul McCartney

                                                                    forfeit the lease, whether through court action or by way of
   At a glance                                                      peaceable re-entry.
                                                                           If the tenant is a company that has gone into liquidation
  l    A lease can be determined before the expiry of the           (or is a bankrupt individual) the landlord may be faced with
       contractual term by surrender or forfeiture.                 the additional possibility of the lease being disclaimed by the
  l    In Hindcastle v Barbara Attenborough, the House              liquidator (or trustee in bankruptcy as the case may be). In
       of Lords noted that a lease could be brought to              Hindcastle v Barbara Attenborough Associates,3 the House
       an end (following disclaimer) by the landlord                of Lords explained the effect of a disclaimer. In the basic case
       taking possession.                                           of a landlord and an insolvent (original) tenant, where there
  l    Some acts or courses of conduct can give rise to             are no other parties involved, the disclaimer operates so as to
       a constructive determination of the lease.                   determine all of the tenant’s obligations under the tenant’s
  l    This article examines these concepts and how                 covenants and its rights under the landlord’s covenants. The
       they are related.                                            landlord’s obligations and rights, which are the reverse of the
                                                                    tenant’s rights and obligations, are also determined. Thus,
                                                                    disclaimer operates to determine the tenant’s interest in the
                                                                    property and hence to determine the lease.
Introduction                                                               However, where there are third parties who may have an
                                                                    interest in or some rights or liabilities in respect of the
In a well-drafted modern form of lease, the guarantee               disclaimed lease, the position is less straightforward. Whilst the
provisions will usually afford the landlord the ability, should     disclaimer may operate to determine the interest of the
the original lease be disclaimed by the liquidator or trustee in    insolvent tenant, it is not, except in so far as is necessary for the
bankruptcy of the tenant, to require the guarantor to accept        purpose of releasing the insolvent tenant from liability, to
the grant of a replacement lease for the balance of the original    affect the rights and liabilities of any other person. Thus the
term. In the recently reported case of Active Estates v             rights and liabilities of others such as guarantors and original
Parness,1 the court explored the liability of a guarantor to take   tenants are to remain as though the disclaimed lease continued
a new lease following a disclaimer. The guarantor had               and had not been determined. In these circumstances, the
declined to take such a lease when so required by the landlord      disclaimed lease, whilst determined from the insolvent tenant’s
and put forward several arguments as to why it was not bound        point of view, survives in a form of legal limbo as regards other
to do so. Part of the guarantor’s case was that certain acts on     relevant parties. As Neuberger J graphically explained in
the part of the landlord had amounted in effect to the landlord     Active Estates:
taking back possession of the premises. The effect of the
landlord repossessing the premises would have been to                  ‘The disclaimed lease was neither in the heaven of
determine the lease thus causing the supporting guarantee              perfect existence, nor in the hell of complete
obligations to fall away. The court, whilst accepting the              determination. It was in the purgatory of disclaimer
guarantor’s argument in principle, rejected the contention             … with the possibilities of being determined as
that the landlord had actually retaken possession on the               between parties unaffected by the disclaimer, or being
particular facts of the case.                                          subject to a vesting order.’4
      In Active Estates the landlord had not taken possession
by directly effecting a peaceable re-entry on to the premises.      This strange state continues either until a relevant party
Instead, the court was asked to consider whether the actions        applies for a vesting order under the relevant insolvency
of the landlord amounted to a constructive re-entry or              legislation or the landlord takes possession of the premises.
repossession of the premises. This article looks at some of         This point about taking possession is important as Lord
the case law in this area and at the general principles which       Nicholls explained in Hindcastle:
can be drawn from it. However, much turns on the specific
facts of each case.                                                    ‘If no vesting order is made and the landlord takes
                                                                       possession, the liabilities of other persons to pay the
                                                                       rent and perform the tenant’s covenants will come to
Legal background2                                                      an end as far as the future is concerned. If the landlord
A landlord of premises, faced with a defaulting tenant, has            acts in this way, he is no longer merely the involuntary
various responses and remedies available to it. On the one             recipient of a disclaimed lease. By his own act of
hand, he might look for others who may be obliged to pay the           taking possession he has demonstrated that he regards
rents reserved by the lease and to perform the tenant’s                the lease as ended for all purposes. His conduct is
covenants, for example guarantors of the tenant or perhaps             inconsistent with there being a continuing liability on
former tenants who still remain liable. Alternatively, the             others to perform the tenant covenants in the lease. He
landlord may look to terminate the lease either consensually,          cannot have possession of the property and, at the
through the agreement of a surrender, or by taking steps to            same time, claim rent for the property from others.’5

Insolvency Law & Practice, Vol 19, No 1, 2003                                                                                          9
      Clearly what amounts to taking possession of the               to the assignment, A had also been required to guarantee
premises by a landlord will be a crucial issue. In cases where       payment of the rent, in the event of the default by M.
the landlord has obtained possession through formal court            Subsequently, M defaulted on rental payments and vacated
proceedings or by way of an agreed surrender the position            the premises. A began negotiations with the landlord for the
should not be in doubt. Additionally the landlord also has           grant of a reversionary lease to A. At the same time, A
the possibility of forfeiting the lease by way of peaceable          opened negotiations with a third party, ‘D’, for the grant by
(also referred to as physical) re-entry. This is usually             A of a new sub-tenancy to D. Prior to the reversionary lease
effected by changing the locks on the premises. Forfeiture           and the sub-lease being completed, D, at a suggestion of and
clauses in well-drafted leases should allow the landlord to          with A’s support went into occupation of the premises.
re-enter part of the premises in the name of the whole.              Shortly thereafter the landlord granted a reversionary lease
Consequently, securing possession of part of the relevant            of the premises to A which was expressed to be ‘subject to
premises can be sufficient to amount to a forfeiture.                and with the benefit of’ M’s lease. A then put up a notice at
                                                                     the premises stating that A had re-entered the premises on
                                                                     the grounds of non-payment of rent.
Constructive determination                                                 Court proceedings were instigated by a mortgagee of
Where there has been no formal forfeiture by way of court            M’s lease who claimed an order for possession. The Court
action or actual physical re-entry onto the premises, the            of Appeal, applying Baylis, concluded that M’s lease had
courts have nevertheless been prepared to accept that action         been terminated as a result of A’s re-entry and consequently
on the part of a landlord can amount to a constructive               the mortgagee’s security was lost. Although A and D had
determination of the lease – normally consisting of some act         commenced their possession of the premises as trespassers,
or conduct on the part of the landlord inconsistent with the         vis-à-vis M, their continued possession after the grant of the
continuing existence of the original lease. However the              reversionary lease to A operated as a re-entry. There was no
limits of this doctrine of constructive determination are not        requirement that the trespass be discontinued before there
always clear. Much turns on the facts of each particular case.       could be a forfeiture by re-entry – in other words it was not
                                                                     necessary for A and/or D to go through the ‘idle ceremony’
Case history                                                         of vacating the premises and then formally re-entering.

Baylis v Le Gros                                                     Ashton v Sobelman
In Baylis v Le Gros, premises were let for a term of 21 years        In Ashton v Sobelman,9 the tenant (‘T’) of an 80-year headlease
to a tenant, a private individual who died shortly after the lease   at a yearly rent of £50.00 per annum had granted a sub-lease
was granted. The tenant’s widow alone proved the will and she        at a substantial rent to ‘ST’. On several successive quarter days,
continued his business at the premises for a couple of years         T failed to pay its rent whereupon the landlord decided to
before she herself died. Shortly thereafter, a third party, Messrs   forfeit the headlease. The landlord proposed to forfeit by way
Le Gros went into possession (although the basis on which they       of peaceable re-entry, evidenced by changing the locks at the
did so was not clear). Subsequently the landlord inspected the       premises. Unfortunately, the landlord failed to consider what
premises and discovered that they were out of repair. The            the legal effect of forfeiture of that headlease would be –
landlord allowed Le Gros to remain in possession as his tenant       namely that it would involve a forfeiture of the underlease at
under an oral agreement and upon condition that certain works        the same time. Thus the landlord’s advisers approached ST and
and other matters were dealt with. When Le Gros later                wrote to him specifically in the following terms:
indicated their intention to quit the premises there were further
negotiations pursuant to which Le Gros remained in possession           ‘We would like to make it perfectly clear that [the
and agreed a tenancy for a further year. The son of the original        landlords] are not in any way challenging your right
tenant thereafter obtained letters of administration to both his        to remain in occupation of the premises under the
father’s and his mother’s estate and began an action to eject Le        provisions of the underlease under which you are the
Gros and recover possession. Essentially the court was asked to         present lessee. Their sole concern is to enforce their
decide whether the original lease had been determined by                legal rights of forfeiture against their tenant …’
re-entry. The court concluded that it had.
                                                                           Chadwick J reviewed the authorities including
     ‘Finding the premises in a dilapidated state, the               Sportsman and Baylis. His view was that the most that could
     landlord comes upon them and enters into an agreement           be derived from Baylis is that a landlord may effect a re-entry
     with the man he finds in possession, to become his              against his tenant by an arrangement with an existing
     tenant, – intending thereby to act upon the forfeiture          sub-tenant under which that sub-tenant is to remain in
     and to oust the lessee. I think that is quite sufficient to     occupation as the tenant of the landlord upon the terms of a
     constitute an entry by the landlord so as to put an end         new tenancy. However on the facts of the case, it was clear
     to the [original] lease.’7                                      that the landlord was not seeking to maintain the sub-tenant
                                                                     as his direct tenant under the terms of a new lease. Indeed
                                                                     the landlords were saying that as far as they were concerned
London and County (A & D) Ltd v Wilfred                              the existing sub-underlease was not to be adversely affected.
Sportsman Ltd                                                        The court on this basis determined that the effect of what the
In London and County (A & D) Ltd v Wilfred Sportsman                 landlord had done could not be to forfeit the headlease. It
Ltd,8 ‘A’ assigned a lease to ‘M’. In order to obtain consent        specifically rejected the proposition that a landlord may

10                                                                        Insolvency Law & Practice, Vol 19, No 1, 2003
effect a re-entry of premises against its tenant by an             end under the proposition expounded in Hindcastle. Nor
arrangement made with an existing sub-tenant under which           had the landlord manifested an intention to forfeit the
the sub-tenant is to remain in occupation of the premises as       leases and install a new tenant.
tenant of the landlord for the residue and otherwise upon the
terms of its existing sublease.
      The facts of this case are significant. It should be noted   Active Estates v Parness
that the rent arrears under the headlease amounted in total        In Active Estates v Parness,12 the landlord (‘L’), in April
to barely £65. The passing rent under the underlease was           1993, granted to E Limited a lease for a term of 25 years
some £3,500 per annum at the time. By forfeiting the               subject to rent review every five years. ‘P’ and ‘O’ were
headlease (which at that point still had some 27 years to run)     parties to the lease as guarantors and covenanted that if the
the landlord would have gained a significant windfall.             lease were to be disclaimed, they would if required by notice
Interestingly, having established to its own satisfaction that     in writing from L take a new lease of the premises for the
the headlease had not been forfeited, the court did go on to       residue of the term which would have remained had there
consider whether, if it had been wrong on the initial finding,     been no such disclaimer.
the tenant would have been entitled to relief from forfeiture.           In 1997 the lease was assigned to G Limited. The
It concluded that relief should have been available and the        premises were used as a fast food franchise but this was
court would have been prepared to grant relief to the tenant.      operated through a different company, J Limited. By early
                                                                   1999, G Limited was having difficulties paying the rent.
                                                                   The rent was then paid by J Limited but was accepted by
Cromwell Developments v Godfrey                                    L expressly on the basis that J Limited was acting as agent
In Cromwell Developments v Godfrey,10 the landlord granted         for G Limited. In June 1999, G Limited was wound up by
leases of adjoining commercial premises to ‘D’. In 1984            the High Court pursuant to a petition presented in April
both leases were assigned to ‘CBL’. In early 1987, CBL             1999. L and G Limited had been having discussions and in
was dissolved under the Companies Act 1985 and the                 July 1999 reached an understanding that, whilst the lease
leases became vested in the Crown as bona vacantia. The            remained vested in G Limited, J Limited could remain in
landlord was unaware of these events. The leases were              occupation and would pay the rent – albeit on behalf of G
ultimately disclaimed by the treasury solicitor in 1993.           Limited. Were the lease to be disclaimed by a liquidator
‘CBTS’ another company controlled by the same person               of G Limited, J Limited would remain in occupation while
who controlled CBL and which was also a tenant in the              there were negotiations for a new lease, subject to L being
same building paid the rents under the CBL leases up until         satisfied as to the reliability of J’s covenant and with its
about September 1990. Liquidators were then appointed              references. Agreement was also reached for a slight
in respect of CBTS. The landlord claimed rent arrears              reduction in the amount of the rent (with payment by
from D as original tenant. At first instance the court ruled       monthly instead of quarterly instalments), the rent to be
that D was not liable, as the leases had been terminated           paid by J Limited on behalf of G Limited. In late August
either by forfeiture or as a result as the landlord’s having       1999, the liquidator of G Limited disclaimed the lease.
entered upon their own property. The case then came                L continued to send rent statements addressed to G
before the Court of Appeal.                                        Limited and for a number of months thereafter J Limited
      The Court of Appeal examined the authorities and             continued to make payment. Payment ceased by April
looking back at Baylis, accepted the basic principle that ‘if      2000. Meanwhile, in December 1999, L served noticed on
the landlord intends to take rent and maintain as a tenant         P and O requiring them to take a new lease of the premises
somebody other than the original tenant … this will amount         pursuant to their guarantee obligations. P and O declined
in law to a forfeiture and a re-letting’. At first instance the    to take the new lease and the matter came before Mr Justice
judge had added a gloss to this principle to the effect that the   Neuberger. For present purposes two of the points raised
law would consider there to have been a forfeiture and re-         by the guarantors are relevant.
letting regardless of the landlord’s intention to re-let. This           Firstly they argued that the lease had either been
the Court of Appeal specifically rejected. In their view, ‘in      surrendered or forfeited before the disclaimer in August
order to conclude that there was a constructive re-entry           1999 by G Limited’s liquidator. Neuberger J was prepared
there had to be evidence of, or a finding, that at some time       to accept that circumstances can arise in which either
… the [landlord] decided to terminate the leases to CBL and        surrender or forfeiture occur without the parties concerned
install new tenants under a new … tenancy. There was no            intending it to happen. However, the only basis on which
evidence to found such a finding’.11                               P and O argued that the lease was surrendered or forfeited
      The Court of Appeal indicated that the key issue was         was by reference to the arrangements agreed with J
whether or not the landlord chose to resume possession by          Limited. On the facts Neuberger J was rapidly able to
re-letting to CBTS shortly after the dissolution of CBL.           dispose of this. In the various discussions between L and
The court found that the person behind both CBL and                the representatives of G Limited, it was made clear that L
CBTS was the same and treated CBL as continuing to carry           was continuing to treat G Limited as its tenant. L had made
on the business at the premises. Rent demands from the             it clear that J Limited occupied the premises effectively as
landlord continued to be addressed to CBL. The landlord            licensee of G Limited and would pay rent as G Limited’s
was never aware of the dissolution of CBL or that (at the          agent. It could not possibly be said that there was any
relevant time) its rights of re-entry under the leases had         intention on the part of L, J Limited or indeed G Limited
arisen. Accordingly, the landlord had not taken possession         to create a new tenancy whilst the lease remained vested in
upon the disclaimer of the leases so as to bring them to an        G Limited.

Insolvency Law & Practice, Vol 19, No 1, 2003                                                                               11
      The second argument raised by the guarantors was             (b)     Where a right for the landlord to forfeit the lease
that following disclaimer, the agreement of July 1999                      has arisen, intention to forfeit must be demon-
took effect. It was argued that this involved L granting                   strated (Baylis; Cromwell Developments). Where
and J Limited taking a tenancy of the premises. To grant                   the landlord’s action is unequivocal, the requisite
such a tenancy would have necessitated L taking (con-                      intention may well be presumed, but only if the
structive) possession and once he had done so the lease                    action is incapable of having any other effect
would have terminated and L could not thereafter en-                       (Active Estates). Compare this with the case of
force the guarantee obligations. Neuberger J, applying                     Relvok Properties v Dixon13 where the assignee of
Hindcastle, accepted this in principle and agreed that if                  a lease absconded leaving arrears of rent. When
a landlord takes possession after a disclaimer, it is not                  the landlord discovered this it changed the locks
open to him subsequently to seek to invoke a provision                     of the premises in order to protect the property
such as the guarantee obligation in the present case.                      and the interests of the absconding party, before
However, on the facts, had the landlord taken possession                   suing an earlier tenant which remained liable for
of the premises? The position after the disclaimer was the                 rent arrears. In this case the changing the locks
same as it had been before the disclaimer subject to three                 was not held to be an unequivocal act, as there was
differences. Firstly, there was the agreement as to the                    no intention on the part of the landlord to bring
reduction of the rental payments and the fact that rent was                the lease to an end.
to be paid monthly not quarterly; second was the agreement         (c)     A constructive re-entry takes place where the
to grant a new lease to J Limited subject to references;                   landlord decides to maintain some other party as
and third was the disclaimer itself.                                       his direct tenant under the terms of a new tenancy
      The first point was easily dealt with. The fact that                 (Baylis). That third party may even be one who
a landlord has agreed to take a lower sum than that to                     initially entered the premises as a trespasser
which he was entitled could not of itself give rise to the                 (Sportsman) or could be an existing sub-tenant.
conclusion that there had been a surrender or forfeiture           (d)     The mere fact that the landlord accepts rent from
of the original lease. The fact that this arrangement took                 a person other than the tenant is not in itself
effect after a disclaimer was irrelevant. Had it been put                  sufficient to amount to constructive re-entry
in place before disclaimer it would not have affected the                  (Cromwell Developments; Active Estates). What
conclusion that there was no taking of possession before                   matters is whether the landlord intends to accept
that disclaimer was made.                                                  the third party as his tenant in place of the old
      On the second point, the arrangements for a possible                 tenant. If the landlord’s actions are inconsistent
grant of a new lease to J Limited did not at that stage amount             with this – for example, allowing a subtenant to
to an enforceable contract. At best there was an agreement                 remain in occupation under the terms of the
in principle that a new lease would be granted but subject to              existing sub-tenancy rather than under the terms
references and covenant. Clearly this was not an enforceable               of a new direct tenancy with the landlord – then
arrangement in its own right.                                              there is no forfeiture (Ashton).
      Finally, the court looked at the disclaimer itself.
Neuberger J indicated that the effect of the disclaimer can        Comment
be overstated. Its effect was not to determine the lease for
all purposes. The lease may have been determined as against
G Limited, but did not prevent the lease from being treated        Re-entry and taking possession
as enforceable as between others, for instance L and the           In Active Estates, arguments were framed in terms of the
guarantors. The disclaimed lease remained in the state of          landlord having forfeited or accepted a surrender of the
purgatory which Neuberger J had identified and L had               lease prior to the disclaimer, but in terms of having taken
neither done anything or intended to do anything which             possession, albeit constructively, after the disclaimer. The
would end that state of affairs. Accordingly, the second line      change of terminology for the post-disclaimer position
of defence raised by P and O was rejected.                         reflects the language of Lord Nicholls in Hindcastle but
                                                                   does it reflect a real underlying difference between the pre
                                                                   and post disclaimer situations? The answer must be no as
Some principles                                                    regards forfeiture.
What principles can we draw from a review of the case law?               In Cromwell Developments, Simon Brown LJ was
The following would appear to be the main points.                  referred to the dictum of Lord Nicholls in Hindcastle (set
                                                                   out above).14 He noted that this could support the argument
(a)    Whilst a disclaimed lease may come to an end as             that the lease had come to an end ‘only if it could be said
       between the landlord and the insolvent (disclaiming)        that the [landlords] themselves took possession. But this
       tenant, the lease will not automatically be treated as      takes one straight back to the concept of constructive
       having fallen away as between other interested              physical re-entry for the purposes of the law forfeiture.
       parties or parties with obligations in respect of that      Unless the [landlords] were intending to let CBTS into
       lease. Instead the lease will continue either until it is   occupation and maintain them there as tenants, there was
       the subject of a vesting order under the relevant           no constructive re-entry, no taking of possession’ [emphasis
       insolvency legislation or until it is otherwise brought     added].15 Lord Simon Brown stated that he could see no
       to an end by the landlord taking back possession of         material distinction between looking at the matter in terms
       the premises (Hindcastle).                                  of forfeiture or by reference to Hindcastle.

12                                                                       Insolvency Law & Practice, Vol 19, No 1, 2003
Surrender and taking possession                                    rights (although admittedly there are some conceptual
                                                                   difficulties as to what exactly the mortgagee’s rights will be
In some of the cases reviewed above, it was argued that the        in these circumstances – for example even if the relationship
acts of the landlord in relation to the premises amounted          between the landlord and the tenant has been brought to an
either to a forfeiture or a surrender. Surrender is normally a     end by the surrender, does the mortgagee have the ability to
consensual arrangement between the landlord and its tenant,        exercise his power of sale and deliver to a purchaser a lease
but there is a long line of case law to support the proposition    equivalent to that surrendered?).
that surrender by operation of law can occur even in the                 Returning to change of terminology seen in Active
absence of intention on the part of the parties to surrender –     Estates (surrender for pre-disclaimer period and taking
the concept being based on the doctrine of estoppel.               possession for post-disclaimer), is there something to
      In Mattey Securities v Ervin,16 a tenant, E Limited,         justify this in the context of a surrender? Here it is
went into administration. B Limited was allowed into               suggested the answer is yes. Post-disclaimer (and pending
occupation of the premises by the administrator and paid           some appropriate person seeking a vesting order), there is
rent to the landlord. Negotiations between the landlord            no ‘tenant’ from whom the landlord can accept a surrender
and B Limited for an assignment of the lease ensued but            or in relation to whom he may undertake some action or
did not complete. Subsequently, the landlord pursued               embark on a course of conduct which gives rise to the
former tenants for rent arrears accumulating after B Limited       estoppel underpinning a surrender by operation of law.
ceased trading. Was there sufficient to uphold a finding           Any act amounting to taking possession would therefore
that the lease had been surrendered by virtue of the               fall to be analysed as a forfeiture not a surrender.
arrangements between the landlord and B Limited (thereby
bringing the former tenant’s liabilities to an end)? There
was not. The Court of Appeal underlined that, whilst               Conclusion
intention is not a prerequisite to surrender by operation of       The law in this area remains difficult. When facing a
law, there must be some unequivocal act which has the              defaulting tenant, the lesson for landlords is to take care.
effect of estopping the parties denying the lease is extant.       Take legal advice early, and, if you want to keep your
On the facts, the negotiations for an assignment were only         options open (whilst you assess the state of the market and
consistent with the continued existence of the lease, not          decide whether or not to enforce the existing lease against
with a surrender.                                                  others potentially liable), be careful how you deal with
      Mattey Securities was pleaded as a case of surrender by      those in occupation of the premises if they are not the actual
operation of law. On the facts it might equally have been          tenant under the lease. If the decision is to terminate the
argued as a case of constructive forfeiture – although that        existing lease, make sure this is done properly.
approach would probably have failed also, applying Cromwell               What is clear is that the cases often turn on facts which
Developments and Active Estates. Indeed there are a number         at the time may not have seemed important. Had the landlords
of parallels between the surrender and forfeiture cases, and       in Ashton made it clear that the sub-tenant could remain in
in cases such as Relvok Properties, the court seemed to view       occupation on the terms of a new lease (the rent and other
the tests of whether something amounted to a surrender or          terms and conditions for which just happened to be identical
a forfeiture as being the same. Cases such as Oastler v            to those of its former sub-lease) then the test set out in Baylis
Henderson17 had already decided that attempts by a landlord        would have been satisfied and proper forfeiture effected – and
to re-let premises which had been abandoned by a tenant did        the landlords could have kept their windfall.
not constitute an unequivocal act amounting to acceptance
of a surrender. As with Cromwell Developments and Active                   Paul McCartney, Partner, Property Finance Team,
Estates, it was not sufficient to show negotiations with or                                           Davies Arnold Cooper
acceptance of rent from a third party. There needed to be a
clear demonstration that the old lease had been replaced by
a new legal relationship.18                                        1.    Active Estates Limited v Parness [2002] 36 EG 147.
                                                                   2.    For a more detailed discussion of the landlord and tenant and
      However, it should be remembered that there are                    insolvency issues see ‘Disclaimer of leases and its impact: the
fundamental differences between a surrender and a forfeiture.            “pecking order”’ (2002) Vol 18 No 3 IL&P 79–89.
One key area of difference is the effect on derivative             3.    Hindcastle v Barbara Attenborough Associates [1997] AC 70.
                                                                   4.    Supra n 1 at 152.
interests. Where a lease is forfeited, this brings to an end not   5.    Supra n 3 at 89.
only to the forfeited lease but also to any interests derived      6.    Baylis v Le Gros (1858) 4 CBNS 537.
out of it.                                                         7.    Ibid at 554 per Cockburn CJ.
                                                                   8.    London and County (A & D) Ltd v Wilfred Sportsman Ltd [1970]
                                                                         3 WLR 418 (‘Sportsman’).
   ‘It is a rule of law that if there is a lessee and he has       9.    Ashton v Sobelman [1987] 1 WLR 177.
   created an underlease, or any other legal interest, if          10.   Cromwell Developments v Godfrey [1998] 2 EGLR 62.
                                                                   11.   Ibid at 65 per Otton LJ.
   the lease is forfeited, then the underlessee or person          12.   Supra n 1.
   who claims under the lessee, loses his estate as well as        13.   Relvok Properties v Dixon (1973) 25 P & CR 1.
   the lessee himself.’19                                          14.   Supra n 5.
                                                                   15.   Supra n 10 at 66 per Simon Brown LJ.
                                                                   16.   Mattey Securities v Ervin [1998] 2 EGLR 66.
      On the other hand, a surrender of a lease does not           17.   Oastler v Henderson (1877) 2 QBD 575.
prejudice or extinguish a sub-lease granted out of it.20 A         18.   See also Bhogal v Cheema [1999] L & TR 59.
                                                                   19.   Great Western Railway v Smith (1876) 2 Ch. D. 235 per Mellish LJ.
mortgagee of a lease is in the same position as the sub-tenant21   20.   Law of Property Act 1925, s 139.
and a surrender of that lease should not defeat the mortgagee’s    21.   Law of Property Act 1925, s 87.

Insolvency Law & Practice, Vol 19, No 1, 2003                                                                                         13

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