This article outlines the difference between a surrender and other landlord remedies when a tenant breaches and voluntarily vacates the leased premises.

Lost ability to recover future rents

Before a nonresidential lease expires, the tenant closes out his business operations and vacates the premises. The tenant does not pay any further rent.

The landlord serves the tenant with a 3-day notice to pay rent or quit. [See first tuesday Form 575]

The notice includes a forfeiture clause stating the landlord’s intent to declare a forfeiture of the lease should the tenant fail to pay rent within three days.

The tenant responds to the notice by letter, stating he elects not to pay future rent and “accepts the landlord’s offer to terminate the lease.” The key to the premises is returned to the landlord.

The landlord responds by letter stating:

• neither the landlord nor the tenant owe each other any obligation under the lease; and
• the tenant is liable for all rent due up to the date the tenant returned the key to the landlord.

The landlord then attempts to relet the premises, but without success.

Later, the landlord makes a demand on the tenant for payment of rents for the entire remaining term of the lease agreement since the landlord declared a forfeiture of the lease in the 3-day notice which terminated the tenant’s right to possession but was not a cancellation of the lease agreement.

The tenant claims the landlord is not entitled to any future rents called for in the lease agreement since the landlord agreed to a surrender of the premises by their communications.

The landlord claims he is entitled to future rents due under the lease after the tenant vacated, since he reserved his right to future rents in the 3-day notice by the declaration of forfeiture and undertook reasonable efforts to relet the premises and mitigate the loss of rent.

Can the landlord recover future rents from the tenant?

No! The landlord has no lost rent to recover under the lease agreement. The lease agreement was no longer enforceable after the landlord agreed to terminate all obligations under the lease in exchange for possession, called a surrender. [Desert Plaza Partnership v. Waddell (1986) 180 CA3d 805]

The tenant’s letter “electing to pay no future rent” and the return of the key to the landlord initiated a surrender, an implied offer to cancel the lease agreement.

The landlord’s letter in response foregoing future rents released the tenant from further liability on the lease agreement, conduct which constitutes the landlord’s acceptance of the offer to surrender initiated by the tenant. The landlord’s response failed to assert his right to collect rents due for the duration of the uncancelled lease.

Surrender on failure to forfeit

A surrender also occurs when the tenant breaches the lease and vacates voluntarily without notice to quit and election to forfeit, and the landlord’s conduct is inconsistent with the tenant’s unforfeited right to possession under the lease agreement.

A surrender results in the:

• termination of the tenant’s right to possession other than by forfeiture; and
• cancellation of the lease agreement.

A surrender is classically initiated when the tenant fails to pay rent and prematurely and voluntarily vacates the premises with no intent to return, called an abandonment.

However, when a landlord fails to forfeit the tenant’s right to possession after the tenant vacates, and then takes possession and relets the premises, inconsistent with the tenant’s right to possession remaining under the lease agreement, the landlord’s conduct has cancelled the lease agreement. The landlord’s right to recover future rents has been terminated.

Thus, any lost rent due to the landlord’s inability to relet the premises after a surrender is not collectible from the former tenant. [Desert Plaza Partnership, supra]

Having acted to cancel the lease agreement, the lost rent resulting from the landlord’s inability to locate a tenant are merely part of the market risks any landlord assumes as the owner of vacant rental property.

Editor’s note — When a landlord elects to “declare a forfeiture of the lease” in a 3-day notice, what is forfeited is the tenant’s leasehold estate and his right to possession, not a forfeiture of the landlord’s contract right to enforce the tenant’s obligation to pay rent agreed to in the lease agreement.

Only ownership of real estate and personal property can be forfeited. Conversely, a lease agreement is not property, it is a contract (as well as a conveyance). A contract consists of rights and obligations which are not subject to forfeiture since contract rights are not property, they are choices in action.

Vacant space and a breached lease

When a tenant breaches the lease and vacates the premises, the landlord may respond in one of four ways:

• terminate the right to occupancy by a surrender (mutual cancellation) of the lease agreement and relet or occupy the premises;
• terminate the leasehold by a declaration of forfeiture (3-day notice, UD trial or notice of abandonment) and relet the premises;
• take possession of the premises and relet it on the tenant’s behalf; or
• enforce any tenant-mitigation provision in the lease and let the tenant relet the premises.

A surrender is an interaction between the tenant and the landlord of either residential or nonresidential property which causes a cancellation of both the tenant’s right to possession and the lease agreement.

A surrender occurs to cancel the lease agreement in one of two ways:

• the mutual consent of the landlord and the tenant [CC §1933(2)]; or
• by operation of law, a surrender implied due to the conduct of the landlord.

Surrender by mutual consent

Consider a tenant who makes a written offer to the landlord to surrender the premises – to vacate and return possession in exchange for cancellation of the tenant’s lease obligations.

The landlord believes a new tenant, who will pay more rent for the space than the current tenant, can be easily located.

Still, the landlord demands an early-termination cancellation fee equal to three months’ rent to cancel the lease agreement. The tenant pays the fee and the landlord cancels the lease. Thus, a surrender has occurred.

Editor’s note — Mid-term leases sometimes contain an early-termination provision under which a landlord will cancel the lease for a fee, usually in the amount of two to six months’ unearned rent – a sort of prepayment penalty or contract liability limitation provision.

Thus, a surrender functions like a deed-in-lieu of foreclosure which conveys the real estate to the lender (possession returned to the landlord) in exchange for the lender’s cancellation of the note obligations (the lease agreement is cancelled).

Surrender by operation of law

Now consider a tenant under a lease with a ten-year term.

A few years after entering into the lease, the tenant vacates the premises. The tenant removes all of his personal property and returns the key to the landlord.

The tenant has no intention of returning and breaches the lease agreement by failing to pay rent.

Knowing a surrender would cancel his right to future rents due under the lease agreement, the landlord advises the tenant he will not accept the tenant’s vacating and return of possession as a surrender.

Without notice of any type to the tenant, the landlord retakes possession and refurbishes the vacated space for the purpose of re-renting it.

Later, the landlord locates a replacement tenant and enters into a lease agreement at a lower rental rate for the balance of the unexpired term on the breached lease.

The landlord then notifies the prior tenant he has leased the premises to mitigate his loss of rent.

The landlord makes a demand on the prior tenant for rent equivalent to the difference between:

• the total rent remaining unpaid over the unexpired term of the prior tenant’s lease; and
• the amount of rent to be paid during the same period by the replacement tenant under the new lease.

Can the landlord recover the lost rent from the prior tenant who vacated the premises and returned possession to the landlord?

No! Before entering the space to prepare for reletting the premises, the landlord failed to either:

• terminate the tenancy by serving a 3-day notice with a declaration of forfeiture or a notice of abandonment; or
• notify the tenant he was taking possession of the premises on the tenant’s behalf.

Thus, the conduct of the landlord at the time he took possession to relet the premises violated the tenant’s unforfeited right to possession. In spite of the landlord’s intent not to accept a surrender, the landlord took possession on his own behalf since he did not first forfeit the tenant’s leasehold or advise the tenant of his intent to act on the tenant’s behalf.

A surrender by operation of law occurred due to the landlord’s actions. The landlord’s actions were inconsistent with the tenant’s possessory right (which had not been terminated) and constituted an acceptance of the tenant’s implied offer to surrender.

As a result of the landlord’s inconsistent activities, both the tenancy was terminated and the lease agreement cancelled as a surrender. [Dorcich v. Time Oil Co. (1951) 103 CA2d 677]

Re-possession on the tenant’s behalf

To act on behalf of the tenant, the landlord must notify the tenant of his intentions to take possession and act on behalf of the tenant – as the tenant’s agent – twice:

• once before taking possession of the premises; and
• again when the premises is relet.

Even though a tenant vacates the leased premises, removes all of his personal property, fails to pay rent and has no intention of returning, the tenant does not and cannot unilaterally terminate his right to possess the premises – the leasehold – or escape his obligations under the lease agreement.

Until the tenant’s right to possession is somehow terminated by the landlord, no person other than the tenant may occupy the premises, unless the landlord acts as the tenant’s agent or acts to preserve his reversionary interest from waste.

Thus, a landlord’s interference with the tenant’s right to possession works a cancellation of the lease agreement (by surrender) when the landlord takes possession of the vacated premises before either:

• terminating the tenancy by forfeiture; or
• notifying the tenant he is taking possession to relet the premises on behalf of the tenant. [Respini v. Porta (1891) 89 C 464]

When a landlord’s activities conducted on the vacated premises are inconsistent with the tenant’s right to possession, i.e. the tenant’s remaining ability to possess and use the premises, the landlord’s conduct constitutes a surrender by operation of law.

Inconsistent behavior while reletting

Consider a landlord who notifies the tenant who has both breached the lease and vacated the premises that he will enter the premises, take possession and relet the premises on the tenant’s behalf.

The landlord, to mitigate the loss of rents, relets the premises for less rent and for a period extending beyond the expiration of the term remaining on the tenant’s lease. The tenant is notified by the landlord he has relet the premises on the tenant’s behalf.

A demand is then made on the tenant for the loss in rent resulting from the reletting of the premises at a reduced rent, which the tenant refuses to pay.

However, to relet the premises and do so on behalf of the tenant, the terms and conditions of the new lease must fall within the parameters of the tenant’s remaining right to possession under the breached lease agreement.

Here, the prior tenant’s right to possession runs only until the expiration of the period fixed by his lease, a period which ends before the new lease expires. The landlord is attempting to act on the tenant’s behalf to relet the property on terms exceeding the possessory rights held by the tenant.

Had the vacating tenant sought to sublet the premises himself, the term of the sublease could not extend beyond the date set for expiration of the tenant’s lease.

Thus, the landlord who does not forfeit the tenant’s leasehold and relets the premises as the tenant’s agent for a longer term than the unexpired term remaining under the vacating tenant’s lease:

• is not renting the premises on behalf of the tenant; and
• has worked a surrender – cancellation of the lease agreement – since his conduct is inconsistent with the vacating tenant’s unexpired lease and unforfeited leasehold. [Welcome v. Hess (1891) 90 C 507]

Now consider a landlord who, on notice to a vacating tenant, takes possession on behalf of the tenant. The landlord maintains and cares for the vacated premises while attempting to relet the premises.

The tenant claims the landlord’s care and maintenance of the property constitutes a surrender since the landlord exercised independent control over the premises by his maintenance activity.

Here, the landlord’s care and maintenance is conduct entered into on behalf of the tenant. Care and maintenance of the property is activity consistent with the landlord’s agency duty to the tenant under the unexpired lease.

As the agent of the vacated tenant, the landlord must make a good faith effort to lease the premises, called mitigation of losses. The landlord, as would the tenant, will be unable to lease the premises in a dilapidated, ill-maintained condition. [B.K.K. Company v. Schultz (1970) 7 CA3d 786]

In an attempt to avoid all these adverse legal consequences (for failure to know or abide by the rules), some leases contain a provision stating a surrender can occur only if the tenant enters into a written cancellation and waiver agreement. [See first tuesday Form 552 §20]

However, the landlord’s improper conduct in response to a tenant’s breach of the lease and vacating of the premises, alone and without a writing, results in a surrender. The landlord’s conduct supersedes the provisions in the lease requiring a written agreement to cancel the lease. Landlord/tenant law controls the result, barring the application of contract law principles to the provision, not the landlord’s conduct in violation of the provision.

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