Case Summary 1: A tenant's return of the keys to his landlord, by itself and on this fact alone, is not enough to end the tenancy (High Yield Ltd v Home Essentials (HK) Ltd)

Case Summary 1: A tenant's return of the keys to his landlord, by itself and on this fact alone, is not enough to end the tenancy (High Yield Ltd v Home Essentials (HK) Ltd)

High Yield Ltd v Home Essentials (HK) Ltd
Case No.: LDPD 1638/2016
Date of Judgment: 23 November 2016
Citation: [2017] 1 HKLRD 357
https://www.hklii.hk/en/cases/hkldt/2016/165?hl=LDPD%201638%2F2016

Facts

The Landlord (High Yield Ltd) leased the premises to the Tenant (Home Essentials (HK) Ltd, running a furniture business) at $40,000 per month from January 2015 to December 2017.

Since January 2016, Tenant failed to pay rent. In August, Landlord gave notice to Tenant to vacate the premises within two weeks. Landlord proposed that Tenant could leave some furniture inside the premises to set off the arrears of rent, and the value of the furniture would be based on valuation, but Tenant rejected the valuation and counter-offered at a different valuation. As a result, Tenant left some furniture inside the premises and returned the keys to Landlord on 15 August. Landlord accepted the keys and showed the premises to other prospective tenants.

In August, in the Lands Tribunal, Landlord sued Tenant for vacant possession of the premises and for outstanding rent from January to August. By 22 September, Landlord agreed with another tenant to lease the premises at the same rent starting from October, i.e. Landlord would have no loss of rent starting from October.

In November, the Lands Tribunal heard this case. Landlord asked Tenant to remove the furniture but Tenant claimed that the furniture now belonged to Landlord. Tenant denied liability to pay the rent for the period after returning the keys in mid-August.

Issue

By leaving some furniture in the premises, did Tenant give vacant possession to Landlord? Further, by returning the keys to Landlord, had the tenancy already ended?

Ruling and Reasons for Judgment

Answer: No.

There was no agreement as to the price of the furniture. The furniture was left in the premises against the wish of Landlord. Tenant did not give vacant possession. (The price of the furniture is to be valued at 50%.)

As a matter of law, the mere fact that Tenant had returned the keys (which Landlord had taken) did not amount to surrender of the lease, because:

1. Accepting the keys without more will always be equivocal. One party has to hold the keys anyway.
2. A landlord entering the premises for inspection or repair will not in itself give rise to a surrender, because it is consistent with his rights and the lease continuing.
3. A landlord protecting or preserving the premises by taking security measures or doing repairs will not in itself give rise to a surrender, because such self-help was necessary to preserve the landlord’s interest in the property and it was a reasonable response to the tenant’s intention not to perform the obligations of the tenancy.
4. The landlord’s seeking to re-let the premises will not necessarily give rise to a surrender, because the landlord is reasonably be expected to find another tenant and to seek to mitigate the damage caused by the tenant’s abandoning the lease.

Landlord was only trying to mitigate his loss. The conduct of the parties did not unequivocally amount to an acceptance that the tenancy ended. Landlord’s acceptance of the Tenant’s repudiation occurred only on 22 September when Landlord agreed to lease the premises with another tenant.

(On the particular facts of this case, Landlord did not claim the arrears of rent from mid-August to the end of September.)

Takeaway

This case states that a tenant’s return of the keys to his landlord, by itself and on this fact alone, is not enough to end the tenancy. The situation is also the same even after the landlord had accepted the keys, entered the premises and led prospective tenants to look at the premises. This is contrary to what a tenant normally would have subjectively thought.

In other words, even if the premises have been emptied, returning the keys to the landlord by the tenant is still unable to stop the tenancy from continuing (and hence the tenant is still liable to continue to pay rent), unless there is some other conduct of the parties unequivocally showing the acceptance that the tenancy has ended (for example, the landlord accepted a new tenant in substitution). Further, even if the tenancy had come to an end, an early termination of the lease by the tenant might entitle the landlord to claim the loss of rent (subject to the landlord’s mitigation of loss).