When a landlord and a tenant both agree to terminate a lease before its expiry date this is called a surrender of Lease.
A lease creates an interest in land in favour of the tenant and constitutes a contract between the landlord and the tenant. A surrender terminates both the tenant’s interest in the land and the contract.
The process of the surrender should be regulated by a Deed of Surrender so that the rights and obligations of both the landlord and the tenant are clearly set out to ensure no disputes can arise at a later time.
Also, if the Lease is registered, section 54 of the Real Property Act requires a Surrender of Lease form to be executed by the parties and upon registration the land will revest in the landlord.
As a preliminary point, the parties should determine who will meet the legal costs relating to and arising out the surrender of the lease.
The process for a typical surrender of lease will be as follows:
1. A Deed of Surrender of Lease has to be prepared covering numerous issues including:
(a) The date of surrender i.e. the date the tenant will vacate the premises;
(b) Payment of rent and outgoings up to the date of surrender;
(c) Making good the premises by the surrender date .i.e. the tenant having to return the premises to the same condition they were in at the start of the lease;
(d) Release of the landlord, tenant and any guarantors from liability from the date of surrender;
(e) The return of any bank guarantee or security deposit to the tenant;
(f) The liability of either the landlord or tenant or both for the legal costs and stamp duty relating to or arising out of the surrender of lease;
(g) The preparation of the Surrender of Lease form to be registered at Land & Property Information (“LPI”); and
(h) Any payment by one party to the other in return for the surrender.
2. The solicitor for the tenant will have to review the Deed and may wish to make amendments to which will have to be negotiated;
3. Once the Deed is finalised, the parties will have to sign it and exchange it so it can come into effect;
4. The tenant will have to make good the premises before the surrender date to the satisfaction of the landlord;
5. The parties will have to execute the Surrender of Lease form;
6. A letter will need to be sent to any mortgagee requesting it to produce the Certificate of Title at the LPI;
7. Once the Certificate of Title has been produced at the LPI, the Surrender form can be lodged for registration; and
8. Once the Surrender form has been registered, the bank guarantee or security deposit can be returned to the tenant.
It should be noted that there will be nominal duty payable on both the Surrender of Lease form and the Deed of Surrender of Lease unless an amount is payable for the surrender in which case additional duty will be due.
Also, the Surrender of Lease form will incur a registration fee and any mortgagee will also charge a production fee.