26 March 2014

The Court of Appeal has allowed the tenant’s appeal in the case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited. The High Court had caused concern by deciding that a new periodic tenancy has been created by implication when a tenant stayed in occupation after expiry of a contracted-out business lease whilst negotiating renewal terms. The judge was influenced by the lack of progress in negotiations for renewal and the tenant’s requirement to stay in occupation until a particular date.

Normally the focus is on the landlord wishing to avoid 1954 Act security of tenure being created by the holding over turning into a protected periodic tenancy. 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 the landlord here was happy to argue that the tenant had a secure periodic tenancy if that meant getting another year's rent. The tenant countered that it occupied merely as a tenant at will and so could leave – and stop paying rent – at any time. 

The High Court decided that a yearly periodic tenancy had been created during the course of several years of holding over and desultory negotiations over the renewal terms. The notice to end a periodic tenancy must be at least as long as the rent period and must end on the last day of a period. In this case the notice period was a minimum of 12 months, expiring on the day before the anniversary of the start date, making the tenant liable for 13 months’ rent amounting to around £185,000. The tenant appealed.

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 a tenant 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. So the tenant had a tenancy at will which could be terminated at any time and the extra rent was not due.

The Court of Appeal decision that a periodic tenancy is not lightly to be inferred from holding over may give more confidence to both landlord and tenant because – as demonstrated by this case – an implied periodic tenancy can be damaging to either side depending on the circumstances. But whichever party was ultimately successful, it also illustrates the importance of documenting any continued occupation by the tenant after expiry of a contracted-out lease. If the intention is to negotiate a new lease, signing a formal tenancy at will should provide stronger evidence of that intention to counter any argument that a protected periodic tenancy has been created, even when the negotiations drift on for an extended period.

For more information please get in touch with Richard Read or your usual contact in our Real Estate or Real Estate Disputes teams.

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