What are you “letting” yourself in for?

July 8, 2014

A recent Court of Appeal decision was a huge relief for a tenant who had ‘held over’ on the expiry of the contractual term of its lease of office premises in Middlesbrough.  In the case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [2014 EWCA CiV 303], Erimus, the tenant of a 5 year lease which was contracted outside of the security of tenure provisions of the Landlord and Tenant Act 1954 (“the 1954 Act”), stayed in situ on the expiry of the term of the lease.  The lease required rent to be paid quarterly in advance.  After the expiry of the term in October 2009 Erimus continued to pay rent on the same basis.

In the months preceding the expiry of the lease the landlord’s managing agents sought to agree terms for a new lease.  Much later and after the expiry of the term of the lease, a counterproposal was made by the tenant and, in the words of the Court of Appeal, discussions continued “at a leisurely pace” and “lacking impetus”.

As late as 2012 the tenant finally decided it was not going to stay at the premises and the tenant’s solicitor served 3 months’ notice on the Landlord with the intention of ending its occupation on 31 August 2012.  A dispute arose as to the validity of the tenant’s notice.  The answer turned on whether the tenant had been holding over under a ‘tenancy at will’ or had a ‘periodic tenancy’.

The landlord sought a declaration that the tenant continued to occupy under an annual periodic tenancy on the basis that the yearly rent was paid quarterly, the fact of which, according to well established case law, created an annual tenancy so that at least 6 months’ notice to terminate the tenancy must be given. Such notice must also expire on the day before a 6 month anniversary of the term start date i.e. in this case 31 October or 30 April in any given year.

The Court looked at the circumstances of the case very carefully.   The Court is consistently reluctant to give an occupier a substantial interest in land.  To infer an annual a periodic tenancy would have also brought the tenancy within the security of tenure protection provisions of the 1954 Act and thus given additional statutory rights to the tenant going forward.  The Court determined that the facts of the case indicated that the parties had not intended to enter into a contractual arrangement pending the agreement of terms for a new lease and also that it was the clear intention that any new lease would also be contracted outside the Act.  Based on the above the Court chose to declare that the tenant was a tenant at will only, the payment of rent not being inconsistent with a tenancy at will.

This decision meant the tenant’s notice was valid and that the tenant had no liability for rent beyond the expiry of the notice period.

Whilst a significant cost saving for the tenant in this instance, the counter to this is that in future a tenant remaining in occupation in the same circumstances and similar facts as Erimus could, as a tenant at will, be required to vacate immediately at any point in time after the expiry of the contractual  term which could obviously have significant impact on that tenant’s business operations.  The clear message is that tenants, whether their lease is inside or outside the Act, need to consider their options well in advance of the lease expiry date and ideally try to negotiate a short term contract arrangement if a long term solution is not immediately available or practical.


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