Leases: What to do at the end

A recent case has highlighted the importance to commercial landlords and tenants of formalising their relationship sooner rather than later. In this case the original lease had expired, but the tenant was continuing to occupy the property.

The tenant had been occupying premises under a five year lease which was contracted out of the Landlord and Tenant Act 1954. The tenant remained in occupation for two years after the lease had expired and was paying rent. Both parties were happy for things to stay as they were whilst they were negotiating terms for a new lease. However, those negotiations ended and the tenant told the landlord that it had found new premises, and gave the landlord three months’ notice of its intention to vacate. The landlord refused to accept the notice and suggested that an annual periodic tenancy had arisen, which required not less than six months’ notice to be ended.

The Court of Appeal disagreed and decided that the tenant had been in occupation under a ‘tenancy at will’. The tenant was therefore not liable to the landlord for any further rent after it vacated as leaving the premises was sufficient to bring the tenancy at will to an end and a formal notice was not needed. A tenancy at will is a flexible arrangement which can be ended by either party at any time (providing no certainty for either party).

The ruling confirms that where there are ongoing negotiations for a new lease, it is likely that a tenancy at will will be implied.

The lesson to learn from this case is that landlords and tenants should deal with their negotiations promptly and ensure that the agreement is correctly documented in order to minimise the risk of dispute. Although both parties may well be satisfied with the position in practice, it is vital for the legal documents to be concluded to accurately record the transaction.

If you are in any doubt about what to do with a lease that is coming to an end please contact Nick Macintyre by emailing or calling him on 0118 947 8638.