The dangers of a secured tenancy

There has long been a recognition of the risks to a landlord of creating a secure tenancy by allowing a tenant to remain in occupation of premises beyond the expiry date of a contracted out lease.

The recent decision in Barclays Wealth Trustee (Jerry) Limited -v- Erimus Housing Limited demonstrated that holding over under a lease can also have serious and costly consequences for the tenant of a contracted out lease.  

The usual assumption in circumstances where parties are in negotiations for the renewal of a contracted out lease after its expiry and the tenant remains in occupation is that a tenancy at will is in place until the renewal lease is put in place.   The decision in this case shows that this may not be the true position where there is significant delay in concluding those negotiations.

In this case the contracted out lease expired at the end of October 2009.  A number of proposals had been put forward for the terms of a new lease prior to the expiry date but nothing was agreed.  The negotiations continued sporadically until heads of terms were finally agreed in June 2011.   Two months later the tenant advised the landlord, via their respective agents, that it wished to relocate to new premises and intended to vacate the premises approximately in six months time.  Finally in June 2012 the Tenant gave three months notice to the landlord of its desire to terminate. 

The landlord applied to the Court seeking a declaration that the tenant had a secure yearly tenancy and succeeded.  This meant that the earliest that the tenant could terminate the tenancy in common law would be on one years notice expiring on a term date and was therefore liable to the landlord for rent at in excess of £170,000.00 per annum together with payment of service charge and insurance rent for a further thirteen months.  

This serves to highlight that there may be a significant risk for not only the landlord but also the tenant in not concluding renewal negotiations in a timely manner.  

Craig Beetham is a Partner within the Commercial Property Department at Gosschalks and can be contacted on 01482 324252 or via cb@gosschalks.co.uk

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