03 October 2013

A recent ruling in Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2013] EWHC 2699 dealt us a new concept – that holding over can be a major risk for tenants as well as landlords. Under this ruling a tenant may find itself liable for rent over an extended period if the court finds a new tenancy has been created by the action – or inaction – of parties who allow negotiations for renewal to drift.

When parties are in negotiations for renewal following expiry of a contracted out lease 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 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 and Tenant Act 1954.  

In this case, before the lease ended the parties’ agents entered discussions about a renewal on similar terms. After expiry it took almost 20 months of occasional negotiation before heads of terms were agreed. At some point before that it must have become common ground that tenant needed bigger premises and would need the flexibility to leave at some point. Two months later, the tenant’s agent suggested to the landlord’s agent that the tenant should continue to hold over until their new premises were available in about six months’ time. The landlord’s agent did not reply and the tenant stayed on paying rent until further discussions started over the arrangements for the tenant to vacate. Finally, the tenant told the landlord it had new premises available and purported to give three months’ notice to leave. The landlord applied to court for declaration that the tenant had a secure yearly tenancy and won. The earliest the tenant could terminate at common law would be on one year’s notice expiring on a term day, so the tenant had to pay rent at over £170,000 per annum plus service charge and insurance rent for another 13 months. And, although not referred to in the judgement, SDLT would be due on that periodic tenancy, which, unlike a tenancy at will, is not exempt.

The judge concluded that the parties behaviour from a few months following expiry was not consistent with an assumption that the tenant could be asked to leave without warning, which is the essence of a tenancy at will. From the point it became clear that the tenant would want to move out sometime, the tone of what little correspondence passed between agents and the fact that no-one was interested in ending the arrangement, or pressing for formal documents to be signed, suggested an understanding that the tenant would be given some notice before being turned out. As the tenant was unsure how long it wanted to stay, no agreement could be implied about a fixed term. No lease under English law can be for an indefinite term so the only form of occupation arrangement which could be implied from the circumstances was a periodic tenancy.

Holding over has previously been seen more as a risk for the landlord as the concern is that the tenant would claim a secure tenancy. This case shows that the tenant should also be concerned.

Both sides should beware of extended delays over renewal, particularly if the terms being discussed change significantly. Most importantly, those involved in renewal negotiations should avoid asking for or giving an assurance, even by conduct, that a period of notice of any length will be given before either side ends the holding over arrangement.

For more information please contact Richard Read, Partner, Head of Investment & Asset Management.

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Richard Read

Richard Read Partner

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