Don’t hang around: a warning to landlords and tenants of the risks of holding over

Don’t hang around: a warning to landlords and tenants of the risks of holding over

The recent case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [2013] EWHC 2688 (Ch) demonstrates that it’s not only the landlord who becomes exposed to risks when they allow their tenant to remain in occupation after a commercial lease has ended. The tenant may also be in for a nasty surprise.

This case also highlights that while the distinction between a periodic tenancy and tenancy at will is a very subtle one, the consequences can vary significantly.

Background

Erimus had a 5 year lease with Barclays which expired on 31st October 2009. The lease was contracted out of the protection under the Landlord and Tenant Act 1954. Erimus remained in occupation after the expiry of the lease, but an agreement was never signed and no agreement was entered into regulating the basis of Erimus’s continued occupation.

On 21st June 2012, Erimus purported to give 3 months’ notice to vacate the property on 28th September 2012. Barclays didn’t accept this, arguing that Erimus occupied the premises under a periodic tenancy and couldn’t terminate the lease before 31st October 2013. Erimus stated that they were occupying under a tenancy at will and that the tenancy had been properly terminated.

The court was asked to decide whether there had been a tenancy at will or if it was a periodic tenancy. The practical effect of the court’s decision was to determine whether Erimus were liable to pay £185,000.00 (a further 13 months’ rent) or whether it could vacate the property on 31st October 2013 with no ongoing liability.

The decision

The judge focused on the conduct of the parties after the expiry of the fixed term. Negotiations for a new lease had been half-hearted and ultimately fruitless, and accordingly Erimus had continued to hold over without objection from Barclays.

Having considered the conduct of the parties, the judge concluded that Barclays was content for Erimus to remain in occupation and pay rent. It was understood by both parties that Barclays wouldn’t be entitled to simply issue proceedings to evict Erimus without first giving notice. The judge considered that, as Erimus acted on the basis that they enjoyed the right to remain in occupation up until a specified date, this couldn't be achieved at law in a tenancy in any form other than a periodic tenancy.

The judge concluded that there was a periodic tenancy (protected by the Landlord and Tenant Act 1954) because the commercial reality was such that Barclays and Erimus expected notice to be given to terminate the tenancy. The tenant was ordered to pay 13 months’ rent, which amounted to approximately £185,000.00 plus substantial legal costs.

Advice for landlords

If a landlord allows their tenant to remain in occupation after expiry of a lease which was contracted out of the Landlord and Tenant Act 1954 and continues to accept rent, the tenant may gain protection under the Landlord and Tenant Act 1954. It’s vital that the landlord, at the very least, stops issuing rent demands and doesn’t accept any rent until the basis of the tenant’s current occupation has been properly documented. Ideally, the landlord should also issue court proceedings for possession of the property.

Advice for tenants

It’s crucial that if a contracted-out tenant doesn’t want to become liable to pay rent for a lengthy period after the expiry of a lease, then they must enter into a temporary tenancy agreement with the landlord ideally before the expiry date.

The position is different where the tenant has a 1954 Act protected lease. In this scenario, the tenant will only be required to give 3 months’ notice to terminate (by serving a Section 27 Notice).

Caught up in a dispute with your landlord or tenant?

We can help you. Call Matthew Fletcher now on 01482 324252 or email mdf@gosschalks.co.uk.

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