A High Court ruling should act as a reminder to both landlords and tenants that the frequent practice of the tenant remaining in occupation at the end of a commercial lease – ‘holding over’ – can be a risky and costly business, warns commercial property agent Prop-Search.
In the case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited, the tenant wished to vacate the premises after ‘holding over’ but found itself liable for 13 months’ rent after it was held that a periodic tenancy had been created.
Chris Billson, a Director at Prop-Search, said: “When parties are in negotiations for the renewal of a lease – contracted outside of the protection of the Landlord & Tenant Act 1954 – and the tenant remains in occupation, the normal assumption is that there is a Tenancy at Will in place until a new lease is signed.”
“This case however, shows that if negotiations stall or restart on different terms, this might not be the case. Depending on what the parties do, it may be that a periodic tenancy can be implied which will automatically have security of tenure under the Landlord & Tenant Act.”
In this case, Erimus had originally entered into a fixed term tenancy agreement with the landlord in November 2004, which expired on 31 October 2009. The rent was £170,209 a year plus service charges, insurance charges and other applicable taxes. After the lease expired, the tenant remained on the premises for a further three years, conducting occasional negotiations with the landlord but not signing a new lease.
In June 2012, Erimus found new premises and gave three months; notice that it intended to vacate the property. However, the landlord said that by remaining in the property, Erimus had created a new periodic tenancy and therefore could not terminate the lease other than by giving notice to expire on an anniversary of the tenancy – namely 31 October 2013. The tenant argued that the arrangement was in fact a Tenancy at Will on expiry of the fixed term, meaning that it could terminate at any time without notice.
The landlord proceeded to apply to the Court for a declaration that the tenant had a secure yearly tenancy and won. When making the ruling, the judge said that whether the tenancy was a periodic tenancy or Tenancy at Will depended on the intentions of the parties. And in this case, the Court had to consider their conduct after the expiry of the original fixed term tenancy where the parties could not be said to be ‘in the throes of a negotiation’ because of the length of time that had passed since the expiry of the lease and the half-hearted negotiations that there had been.
Chris Billson concludes: “This case should also act as a reminder to landlords. By allowing a tenant to remain in occupation, post lease expiry, can be construed as a period tenancy unless there is clear evidence of on-going negotiations for a new lease throughout the period of occupation. Failure to do this could result in the tenant acquiring security of tenure for the periodic tenancy under the Landlord & Tenant Act 1954.”
“Landlords should give consideration to entering into a written form of a Tenancy at Will to cover the position or better still make sure that they have negotiated a new formal lease before the end of the original lease.”
