When ‘holding over’ following the end of an excluded tenancy, it is crucial for both the landlord and the tenant to know the nature of their legal relationship. Property law expert, Caroline Entwistle, explains the difference between a Periodic Tenancy and Tenancy at Will, and when each might apply. You can contact Caroline by email, or call her on 01225 462871.
Where a tenant occupies premises for business purposes, it is not uncommon to find they remain in occupation after the lease term has expired. In some cases, this situation may have continued for several years.
This may be the result of an oversight on the part of the landlord, the tenant opting not to remind them so as to delay the inevitable rent review as part of the negotiations over a new lease. Or, in a stagnant market, the landlord may decide to keep quiet in case the tenant finds alternative premises on a better deal. Alternatively, there may be no oversight at all, with the parties simply content for the status quo to continue.
Landlord and Tenant Act 1954
Unless it is an ‘excluded tenancy’ (see below), when a contractual tenancy comes to an end, as a result of provisions in the Landlord and Tenant Act 1954 (“the Act”), a business tenant enjoys security of tenure. The Act provides that the tenancy continues on a statutory basis, giving the tenant the right to remain in occupation and to ask the landlord to grant them a new tenancy. The landlord may only object to granting a new lease on certain limited grounds provided in the Act, with a very high burden of proof required to evidence those grounds.
However, as long as statutory procedures are followed before the parties enter into a lease, they can quite properly agree that the tenant will not have security of tenure under the Act. This creates an ‘excluded tenancy’ which simply comes to an end on the contractual termination date.
When an excluded tenancy comes to an end, if the tenant remains in occupation, they will usually keep paying the rent and the landlord will accept it. This situation is referred to as “holding over”. But the tenant is no longer occupying the premises under the terms of its excluded tenancy as that has come to an end. Instead, if there is continued occupation and payment and acceptance of rent, one of two types of tenancy is created:
- a tenancy at will; or
- a periodic tenancy.
The difference between these two types of tenancy is very important. A tenant has next to no rights with a tenancy at will. The landlord can eject a tenant at any time and without giving notice. A periodic tenancy gives a tenant’s occupation greater protection.
Which of them is created will depend upon the parties’ intentions and conduct, and it is, of course, vital that the parties understand the nature of their legal relationship. The leading case on determining this issue is the Court of Appeal decision in Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited (2014).
In that case, it had been several years since an excluded tenancy had come to an end, since when negotiations over renewal terms could at best be described as half-hearted. Somewhat unusually, it was the tenant arguing that the arrangement was a tenancy at will.
The matter first came before the High Court who decided that following the end of the excluded tenancy, a yearly periodic tenancy had been created. But on appeal, it was held that the fact the parties had continued in negotiation, however desultorily, gave rise to an inference that they had not intended to enter into any intermediate arrangement, such as a periodic tenancy, which would be inconsistent with those ongoing negotiations. The Court said that in such a situation, in the absence of any compelling evidence to the contrary, the normal expectation is that the occupier remains a tenant at will until the new lease is executed.
Further, the inference that there was a tenancy at will was even stronger when any periodic tenancy would have security of tenure under the Act – especially as the intention of the parties was that the new lease was to be an excluded tenancy.
The decision that a periodic tenancy will not be lightly inferred from holding over should give confidence to both landlords and tenants as, depending on the circumstances, an implied periodic tenancy can be unattractive or even damaging to either party – remember, in this case it was the tenant who argued that the arrangement was a tenancy at will.
This case also demonstrates the importance of documenting a tenant’s continued occupation after the contractual termination date. Put simply, if the intention of the parties is to negotiate a new lease, entering into a formal tenancy at will pending the conclusion of negotiations, provides much stronger evidence of that intention. This can be used to counter any suggestion that a periodic tenancy has been created, even when, as here, negotiations drift on over a lengthy period.