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A deed of surrender formally terminates a commercial lease by mutual agreement. But what exactly should it say? A poorly drafted deed can leave critical issues unresolved, exposing both landlords and tenants to future disputes and liabilities.
This article breaks down the essential elements every deed of surrender must contain, explaining what each clause achieves and why it matters. Whether you’re a landlord accepting a surrender or a tenant negotiating one, understanding these provisions protects your interests and ensures the surrender is legally effective.
A deed of surrender is a legally binding contract with significant financial consequences. Missing provisions or ambiguous wording can result in:
Professional drafting by an experienced commercial property solicitor ensures the deed comprehensively addresses all relevant issues and provides certainty for both parties.
The deed must correctly identify and be executed by all parties who hold interests under the lease.
Current landlords: All landlords must be party to the deed. If the freehold or superior lease is jointly owned, all co-owners must join in. Identify landlords by their full legal names and addresses.
Current tenants: All tenants under the lease must execute the deed. Where there are joint tenants, all must participate. Companies should be identified by their registered name and company number.
Guarantors: If the lease has guarantors, they should ideally be made party to the deed to confirm their release from liability. At minimum, the deed must address their position in the release provisions.
Mortgagees: Check whether the landlord’s interest is subject to any mortgage or charge. Some mortgages prohibit surrender without the lender’s consent. If consent is required, the mortgagee should either be party to the deed or provide separate written consent that is referenced in the deed.
Practical tip: Obtain up-to-date Companies House and Land Registry searches to verify the correct parties and identify any charges that may affect the surrender.
Recitals appear at the beginning of the deed and provide background context. They typically include:
While not strictly essential, well-drafted recitals help interpret the deed’s operative provisions and provide useful context if disputes arise later.
The deed must clearly identify the premises being surrendered. This is usually achieved by:
The property description should be precise enough that there’s no ambiguity about what lease is being surrendered, particularly in multi-let buildings where similar units exist.
The deed must specify when the surrender takes effect. This is the date from which the lease ends and the tenant’s obligation to pay rent ceases.
Options include:
Immediate surrender: The surrender takes effect on the date the deed is executed. This is appropriate where the tenant has already vacated and all conditions are satisfied.
Future dated surrender: The deed specifies a future date when surrender will occur. This allows time for the tenant to vacate, complete repairs or fulfil other conditions.
Conditional surrender: The surrender only takes effect when specified conditions are met (for example, payment of a surrender premium or completion of dilapidations works).
Agreement for surrender: Where a longer lead time is needed, parties may execute an “Agreement for Surrender” that commits them to complete a formal deed of surrender on a specified future date.
Be explicit about the surrender date to avoid disputes about when rent liability ends and vacant possession must be given.
Although a deed is binding without consideration, it’s good practice to document any financial arrangements forming part of the surrender.
Surrender premium: If either party is paying the other to agree to the surrender, state the amount, when it’s payable and how payment will be made (for example, by bank transfer on completion).
Dilapidations settlement: Document any agreed payment in lieu of repairs, or confirm that specific works have been completed to the landlord’s satisfaction.
Advance rent and service charges: Address whether any rent or service charge paid in advance will be refunded, and if so, how much and when.
Other financial adjustments: Deal with items such as:
VAT considerations: Clearly state the VAT treatment of any payments. Surrender premiums may be subject to VAT depending on the circumstances, but dilapidations payments generally are not.
This is the most critical section of the deed, determining what obligations end and what liabilities may continue.
Release of future obligations: The deed should expressly state that from the surrender date, both parties are released from all future obligations under the lease. This includes the tenant’s obligation to pay rent and comply with covenants, and the landlord’s obligation to provide quiet enjoyment and maintain insured risks.
Treatment of past liabilities: Clearly specify whether historic breaches, arrears or other accrued liabilities are:
Released entirely: The landlord provides a full release, meaning the tenant (and guarantor) have no continuing liability for any matters arising before surrender. This is typically given in exchange for a surrender premium or dilapidations settlement.
Preserved: Specific liabilities remain actionable. For example: “Nothing in this deed shall affect the Landlord’s right to pursue the Tenant for rent arrears of £X outstanding as at the Surrender Date.”
Partly released: Some matters are released whilst others are preserved. For instance, dilapidations might be settled for an agreed sum, whilst past breaches of user covenants remain actionable.
Without clear drafting on this point, disputes frequently arise about whether the landlord has waived historic claims or can still pursue them.
Guarantor release: If the lease has guarantors, the deed must address whether they are released. Options include:
Guarantors should insist on being party to the deed or obtaining clear confirmation of their release. Otherwise, they risk remaining liable even though the tenant has been released.
The surrender may be conditional on certain requirements being met. These conditions precedent should be clearly listed, with provisions for what happens if they’re not satisfied.
Common conditions include:
Consider including: A provision for what happens if conditions aren’t met. For instance, the surrender may be void, or the landlord may have the right to withhold part of the rent deposit to remedy breaches.
The tenant typically provides certain warranties (statements of fact) and indemnities (promises to compensate for losses) to give the landlord comfort about the property’s condition and compliance.
Common tenant warranties:
Indemnities: The tenant may indemnify the landlord against:
These provisions protect the landlord but can extend the tenant’s liability beyond the surrender date. Tenants should seek to limit warranties and indemnities to reasonable scope and ensure they’re released entirely if a surrender premium is paid for that purpose.
The deed should confirm the tenant’s obligation to give and the landlord’s right to take vacant possession on the surrender date.
Typical provisions:
This clause is essential to avoid disputes about whether surrender has been properly completed. We recommend parties meet at the property on the surrender date to verify it’s vacant, hand over keys and confirm completion.
Commercial practice varies on who bears the costs of surrender.
Options include:
Each party bears own costs: This is most common, with the landlord paying their solicitor and the tenant paying theirs.
Tenant pays all costs: The landlord may require the tenant to reimburse their legal and surveying costs as a condition of agreeing to surrender. This is particularly likely where the tenant has requested surrender rather than it being mutually beneficial.
Costs included in surrender premium: Rather than separate cost provisions, the parties may agree an all-inclusive surrender premium that covers the landlord’s costs.
The deed should explicitly state the agreed position to avoid later disputes about cost recovery.
Value Added Tax can apply to certain aspects of commercial property transactions, including surrender.
Key points to address:
Surrender premiums: May be subject to VAT if the landlord has opted to tax the property. The deed should state whether any premium is inclusive or exclusive of VAT, and if the latter, the rate applicable.
Dilapidations payments: Generally not subject to VAT as they’re compensation for breach rather than consideration for a supply.
Costs reimbursements: Legal costs are subject to VAT; surveyors’ costs typically are too.
Include a VAT clause confirming the parties’ understanding and, where relevant, requiring the party receiving payment to provide a proper VAT invoice.
Address what happens to any rent deposit held under the lease and any rent or service charge paid in advance.
Rent deposit: Usually returned to the tenant, less any authorised deductions for arrears, breaches or dilapidations. The deed should specify:
Advance rent: Where rent has been paid quarterly in advance and surrender occurs mid-quarter, determine whether the landlord refunds the excess or retains it (for example, as part of the consideration for accepting surrender).
Without clear provisions, tenants may lose significant sums they’ve paid in advance.
For leases originally granted for more than seven years that are registered at the Land Registry, the deed must facilitate closure of the lease title.
Include provisions:
Failure to register the surrender can create complications for the landlord’s title, particularly when later granting new leases or selling the property.
Other clauses commonly included:
Entire agreement: Confirms the deed contains the entire agreement between the parties regarding surrender, superseding any prior negotiations or understandings.
Counterparts: Allows the deed to be executed in multiple identical copies, each being an original. Useful where parties can’t meet to sign a single document.
Governing law and jurisdiction: Confirms the deed is governed by English law (or specify if it’s a Welsh property) and which courts have jurisdiction.
Notices: Sets out how notices between the parties should be given (addresses for service, whether email is permitted, when notices are deemed received).
Successors: Confirms the deed binds the parties’ successors in title, though this is usually implicit.
Severability: If any provision is held invalid, the remainder of the deed continues in force.
For the document to be effective as a deed, specific formalities must be satisfied.
For detailed guidance on execution, see our article on formal requirements for deeds.
Where parties need time before completion, they may first enter into an “Agreement for Surrender” that commits them to complete a deed of surrender on a future date.
An agreement for surrender:
The agreement should set out all the terms that will be incorporated into the final deed, including the surrender date, any premium or dilapidations settlement, and conditions to be satisfied.
On the specified completion date, the parties then execute the formal deed of surrender, bringing the lease to an end.
Ambiguous release provisions: Failing to clearly state what liabilities are released and what are preserved is the single most common cause of post-surrender disputes.
Ignoring guarantors: Overlooking guarantor release can leave them liable and potentially able to challenge the surrender.
Inadequate condition precedent provisions: Not specifying what happens if conditions aren’t met creates uncertainty about whether surrender has completed.
Missing VAT clauses: Can result in unexpected tax liabilities or disputes about gross vs net payments.
No provision for advance rent refund: Tenants may lose significant sums paid quarterly in advance.
Failing to address subleases: If the tenant has granted any subleases, the deed must deal with their status post-surrender.
Insufficient property description: Particularly in multi-let buildings, ambiguity about which lease is being surrendered can cause problems.
Not addressing mortgagee consent: Surrendering without required lender consent may render the surrender invalid.
Given the complexity and financial stakes, both landlords and tenants should instruct experienced commercial property solicitors to draft or review the deed of surrender.
Professional drafting ensures:
At RLK Solicitors, our commercial property team regularly drafts deeds of surrender for both landlords and tenants. We take time to understand the commercial context, negotiate optimal terms and ensure the documentation provides certainty and closure. Given the complexity of Land Registry requirements, it is generally advisable for the documents to be professionally drafted and registered.
We also work closely with our commercial litigation colleagues when disputes arise about the interpretation or effect of surrender deeds, or where terms cannot be agreed.
For guidance on the broader surrender process, see our article on surrendering a commercial lease. For advice on related issues, our articles on commercial lease agreements and resolving property disputes may also be helpful.
Contact RLK Solicitors today for expert advice on commercial lease surrender and deed drafting.
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