The Court of Appeal has recently found in favour of a tenant and decided that a new periodic tenancy was not created, despite protracted negotiations for a new lease after the original lease expired, says commercial property agent Prop-Search.
In the case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited, the High Court ruling had caused concern by deciding that a new periodic tenancy had been created by implication when Erimus stayed in occupation after expiry of a business lease - contracted outside of the security of tenure provisions contained in the Landlord and Tenant Act 1954 - whilst still negotiating renewal terms. The High Court decided that a yearly periodic tenancy had been created during the course of several years of holding over and halfhearted negotiations over the renewal terms, with the judge influenced by the lack of progress in negotiations for renewal and the tenant’s requirement to stay in occupation until a particular date.
The ruling meant that Erimus staying on in the property had created a new periodic tenancy. Whilst this gave them additional legal protections, it also prevented them from terminating the lease other than by giving notice to expire on an anniversary of the tenancy. In this case the notice period was a minimum of 12 months, expiring on the day before the anniversary of the start date, making Erimus liable for 13 months’ rent amounting to around £185,000.
Chris Billson, a Director at Prop-Search, said: “It is often the case that a landlord will allow a tenant to remain in occupation following the expiry of the contractual lease, particularly in circumstances where the market rental value of the premises have fallen and the landlord is keen to retain the tenant. However, normally the focus is on the landlord wishing to avoid security of tenure being created by the holding over turning into a protected periodic tenancy.”
He added: “Security of tenure would mean the landlord could only get possession back by proving one of the specified statutory grounds and either party would have to give a minimum of six months' notice to end the tenancy. This is something that most landlords are keen to avoid, but in this case, Barclays Wealth Trustees were happy to argue that the tenant had a secure periodic tenancy if that meant getting another year's rent. Erimus countered that it occupied the accommodation merely on a Tenancy at Will and so could leave - and stop paying rent - at any time.”
The Court of Appeal held that the fact that the parties were in negotiation for the grant of a new formal lease gave rise to the obvious inference that they had not intended to enter into any intermediate contractual arrangement - such as a periodic tenancy - inconsistent with ongoing negotiations. The ongoing negotiations, although very slow, had not been abandoned. The normal expectation in such a case is that the occupier remains in occupation on a Tenancy at Will until the execution of the new lease - in the absence of any compelling evidence to the contrary.
Unlike the High Court, the Court of Appeal did not find the evidence to the contrary particularly compelling. The inference of a Tenancy at Will was even stronger when any periodic tenancy would have security of tenure under the 1954 Act and so could only be terminated in restricted circumstances - especially as the intended new lease was to be contracted out of these provisions. So the ruling given was that Erimus indeed had a Tenancy at Will which could be terminated at any time and the extra rent was not due.
Chris Billson added: “The Court of Appeals decision that a periodic tenancy is not lightly to be inferred from holding over may give more confidence to both landlord and tenant. Tenants can breathe a sigh of relief that in these circumstances they will not risk having to pay rent for an extended notice period, and landlords will be comforted that they can obtain possession of their premises more quickly following a breakdown in negotiations for a new lease.”
However, it is also important to note that the position is quite different where an original lease is protected by the Landlord and Tenant 1954 Act. In those circumstances the tenant will automatically continue to hold over under the terms of the old lease or be entitled to vacate upon giving three months’ notice to terminate by serving a Section 27 Notice.
To avoid any doubt, Prop-Search advises that both landlords and tenants should always try and start lease negotiations in good time and ensure that any new lease is agreed and put in place before the contracted out lease comes to an end.
Further information or advice can be obtained from Prop-Search - Tel: 01933 223300 / 01604 492000 or its website: www.prop-search.com