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What is the status of a tenant’s occupation once its act excluded lease ends?

29 May 2014

A recent Court of Appeal ruling shows it is crucial for landlords and tenants to plan well ahead of a lease expiring.

What has been decided?

Following our coverage of Lease expiry: a warning for landlords and tenants, the first instance ruling of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [1] has been overturned and the decision in the 1991 case of Javad v Aqil  [2] upheld.

The Court of Appeal has re-established the rule that where parties are negotiating the terms of a new lease and the tenant remains in occupation following the expiry of a lease which is excluded from Part 2 of the Landlord and Tenant Act 1954 (1954 Act), the relationship is one of tenancy at will.

The effect of this decision is that either party can bring to an end the tenancy at any time, which may leave the landlord with an unoccupied property or the tenant with no protection from a landlord serving a notice to quit.

Why a tenancy at will and not a periodic tenancy?

The High Court had originally decided that a periodic tenancy [3] had arisen. The tenant had remained in occupation and continued to pay an annual rent on a quarterly basis.

Negotiations with the landlord progressed in a rather half-hearted fashion but after some time the tenant sought to vacate and gave three months' notice to the landlord. Yet, the High Court ruled that a yearly periodic tenancy had arisen, requiring either party to give the other one years' notice to terminate the decision.

The Court of Appeal disagreed. It held that a tenancy at will is more likely to arise where the terms of a new lease are still under negotiation. Although the negotiations between the landlord and tenant in this case were slow, they had not been abandoned altogether.

The parties were still in the throes of negotiation and this was evidence that the parties had no intention to enter into a periodic tenancy or other interim contractual arrangement.

A periodic tenancy would not only have implications on the requisite notice period for termination, but would also allow the tenant to enjoy security of tenure under Part 2 of the 1954 Act. In fact, in this case, the intention was for any new lease to be contracted out of the provisions of the 1954 Act and so the inference of a tenancy at will was even stronger.

The moral of the story

Whilst the decision in this case is favourable to the tenant, landlords and tenants should note that the tenant's position will no longer be protected by the implication of a periodic tenancy carrying with it the statutory protection under the 1954 Act. Accordingly, landlords will be able to terminate the tenancy at much shorter notice to reclaim possession of the premises.

The outcome of this appeal should put landlords and tenants on alert when coming to the end of a tenancy and intending to enter into a new agreement.

Where a tenant is to remain in possession of the property following the expiry of the lease and terms have not been agreed by the parties, it pays to enter into a formal interim agreement excluding security of tenure under the 1954 Act, for the period between expiry of the existing lease and entry into a new lease.

[1] [2014] EWCA Civ 303
[2] [1991] 1 WLR 1007
[3] (that is one which automatically continues from one rent payment period to another until terminated)

This article was written by Emma Humphreys.

For more information please contact Emma on +44 (0)20 7203 5326 or emma.humphreys@crsblaw.com