Background
TLC Investment Ltd underlet warehouse premises in Ellesmere Port to Euroresins UK Ltd under a lease due to expire on 19 May 2025. After TLC refused consent to proposed assignments, citing alleged disrepair, Euroresins brought proceedings. The parties settled through a December 2023 Tomlin order and attached settlement agreement, under which the lease was to be surrendered early on 29 September 2024 and Euroresins was to deliver the premises up in repair.
The agreement provided for an RICS-appointed expert to identify required works and determine disputes about their adequacy. The court purported in the Tomlin order to sanction the surrender under section 38 of the Landlord and Tenant Act 1954. After further dispute, including two reports by the appointed surveyor, the parties accepted that the statutory procedure in section 38A had not been followed and that the surrender agreement was void. The court tried preliminary issues concerning the effect on the settlement and whether the expert reports were binding.
The Court’s Holding
HHJ Cadwallader held for Euroresins on both issues. The court had lacked jurisdiction in 2023 to authorise the future surrender under the former court-sanction procedure in section 38; section 38A required prescribed notice and procedural formalities, which had not occurred. Although section 38A does not automatically invalidate every provision in a wider transaction containing a surrender agreement, clauses 3.2 to 3.4 were the core early-surrender, repair, and expert-process bargain.
The remaining settlement terms had no independent commercial purpose apart from that bargain. The agreement was therefore void in its entirety, and its severability clause could not save it. In any event, severance would fundamentally alter the bargain by replacing an early surrender and repair arrangement with a quite different agreement. The expert-determination provisions consequently failed; they were neither separable nor replaced by a free-standing agreement arising from the parties’ participation in the RICS process. Mr Woudman’s reports were not binding determinations.
Key Takeaways
- A future surrender of a protected business tenancy must comply with section 38A’s prescribed procedure; a Tomlin order cannot substitute for it.
- Statutory invalidity is directed to the surrender arrangement and its terms, but may invalidate an entire settlement where all provisions form one surrender-focused bargain.
- Participation in an expert process does not itself create a separate binding agreement where the process rests on an invalid settlement.
Why It Matters
The decision is a warning that settlements involving an agreed future surrender of a 1954 Act-protected tenancy must follow the current statutory contracting-out procedure exactly. Reliance on the pre-2004 court-authorisation model can leave the intended surrender and related settlement machinery ineffective.
The court also confirms that carefully framed severability language cannot preserve a settlement whose substantive provisions are inseparable from a statutorily void surrender bargain. Further directions were required on what remained of the new dispute and any application to reopen the underlying proceedings.