It is not uncommon for business leases to be contracted out of the protection afforded by the Landlord and Tenant Act 1954. When such leases come to an end, the tenant has no statutory right to be granted a new tenancy. However, the tenant may stay in occupation and seek to enter into negotiations with the landlord for a new lease. The legal status of the tenant’s occupation during the period after the original lease has expired, but before the new lease is granted, can have a significant impact on notice periods and security of tenure. These, in turn, impact upon the tenant’s liability to pay rent and the landlord’s estate management.
Court of Appeal
This was demonstrated in the recent Court of Appeal case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [2014]. In this case, the Court had to decide whether the tenant was occupying under a tenancy at will or a periodic tenancy. This was important as it affected the notice period which the tenant was required to give in order to vacate and therefore the rent for which it was liable. The original lease expired on 31 October 2009 and the tenant remained in occupation paying rent at the same rate. Negotiations for a new lease commenced and it was intended that the parties would enter into a new lease. However, negotiations proceeded very slowly. No new lease was entered into and in June 2012 the tenant gave the landlord formal notice that it wished to vacate the premises in September 2012. The tenant vacated on 28 September 2012.
The court had to decide whether the tenant had occupied the premises under a tenancy at will or under a periodic tenancy from 31st of October 2009. If the tenant occupied under a tenancy at will, the notice it had given to the landlord in June 2012 was sufficient. However, if the tenant occupied under a periodic tenancy, the notice would be insufficient as the earliest date the tenant could have terminated the period tenancy would have been 31st of October 2013 and the tenant would be liable for rent up to that date.
The Court decided that although the negotiations for a new lease had proceeded at a leisurely pace from 31 October 2009, it was satisfied that in commercial terms the rent was acceptable to both parties and the landlord had no reason to seek possession of the premises. It felt this was an important factor, as the negotiations for the new lease had not ceased or been abandoned by the parties. Therefore the court held that the tenant had been in occupation under a tenancy at will. As a result, the tenant was not liable to the landlord for any further rent after it vacated as the vacation was sufficient to terminate the tenancy at will and there was no requirement for any notice to be provided.
Landlord and Tenant Act 1954.
The Court’s decision is likely to be of some comfort to landlords, in particular, to know that if negotiations for a new lease are continuing, even at a slow pace, it is unlikely that the court will consider that a periodic tenancy with the protection of the 1954 Act has arisen. That said, it is likely, based on previous case law, the Court will hold a periodic tenancy has been created in circumstances where the parties have made no progress at all in executing a lease, particularly where a number of years have passed, with no progress, after reaching agreement on the terms for that new lease.
The case reminds parties that it is important for them to consider the nature and legal status of their relationship following the expiry of a contracting out lease and to document this relationship as soon as possible following lease expiry.
