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19th November 2013

Holding over – risky for both landlords and tenants

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[Published in November 2013]

A recent High Court case, Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd, highlighted the risks for tenants of staying in occupation, or “holding over”, after the end of the fixed term of a contracted out lease.

When a tenant has a contracted out lease, i.e. one without the protection of the security of tenure provisions in the Landlord and Tenant Act 1954, he has no automatic right to remain in occupation after the lease ends. However, if he is allowed to continue in occupation and the landlord accepts rent, a new tenancy is created. This could be a tenancy at will or an implied periodic tenancy, depending upon the circumstances. Which it is can have important consequences.

1. Notice provisions: A tenancy at will can be terminated immediately, but a periodic tenancy can only be terminated on notice. The notice period is calculated by reference to the period for which the rent is paid, and, in many cases where the lease expresses the rent as “£x per annum”, at least 6 months’ notice will be required, such notice expiring at the end of a year (even if the rent was paid in quarterly or monthly instalments).

2. Security of tenure: A periodic tenancy gives the tenant security of tenure under the 1954 Act while a tenancy at will does not.

3. Tax: SDLT may be due on a periodic tenancy. A tenancy at will is exempt.

This case involved a lease which was excluded from the 1954 Act. Before the end of the fixed term on 31 October 2009, the parties began negotiations for a renewal lease and the tenant remained in occupation after the end of the term. Some time later the tenant proposed that it should be allowed to stay in occupation, paying as it had done to date, until it was ready to move to larger premises around March 2012, but there was no resolution to this proposal. Eventually, on 21 June 2012 the tenant wrote to the landlord giving 3 months’ notice that it intended to leave the premises on 28 September 2012.

The landlord argued that the notice was insufficient. It said that the tenant occupied the premises on a yearly periodic tenancy and needed to give at least 6 months’ notice of termination expiring on 31 October.

The Court agreed with the landlord. The parties’ behaviour was not consistent with a tenancy at will. The only arrangement that could be implied was a periodic tenancy. The tenant had continued to pay an annual rent so, even though this was paid on a quarterly basis, it was a yearly periodic tenancy. Therefore the tenant had to give at least 6 months’ notice expiring on the last day of a period and so remained liable for a further 13 months’ rent, around £185,000, up to 31 October 2013.

Many landlords are aware that, if they allow tenants to stay in occupation after the expiry of a contracted out lease, they run the risk of inadvertently giving the tenant security of tenure under the 1954 Act. This is a reminder that this can cause problems for the tenant too.

The basis of the tenant’s occupation after a fixed term expires should always be properly documented. If you intend to negotiate a new lease, serious thought should be given to completing a written tenancy at will to reduce the risk of creating an implied periodic tenancy and the landlord finding that the tenant has 1954 Act protection or that the tenant cannot leave when it wants to.

Please do however note that, in the case of the expiry of a lease with 1954 Act protection, the situation is different and the previous lease will be deemed to continue on the same terms until a new lease is granted.

For more information, please contact Tim Middleton on 01223 461155 or click here to email Tim.