Uncertainties in ‘holding over’ for tenants and landlords

A recent Court of Appeal (CoA) ruling reinforces the need for tenants and commercial landlords to seek to minimise the uncertainties of ‘holding over’.

A contracted-out tenant who continues to occupy the premises while a new lease is being negotiated would normally have a tenancy at will, which is terminable by the landlord demanding possession or the tenant giving up possession. However, it is also possible for a tenant to have acquired a periodic tenancy, which would mean that either party would be required to give a longer period of notice, with the notice expiring at the end of a rent payment period.

The CoA decision – in Erimus Housing Limited v Barclays Wealth Trustees (Jersey) Ltd & Ors [2014] EWCA Civ 303 – provides guidance for distinguishing a periodic tenant from a tenant at will.

In the specific case under review, the parties were negotiating a new lease. The tenant informed the landlord of its intention to leave, but the landlord claimed that an annual periodic tenancy had arisen, requiring the tenant to give six months’ notice ending at the end of a period of the tenancy. The tenant argued that it was a tenant at will. The negotiations had been protracted, even ‘painfully slow’ at times, but crucially they had not been abandoned. The tenant carried on paying the annual rent. There was no attempt to enter into an intermediate contractual relationship that was inconsistent with the existing negotiations on a new lease. Both parties assumed that a new formal lease would be agreed, with no suggestion that Erimus should become an annual periodic tenant, protected by the Landlord and Tenant Act 1954. The normal expectation in these circumstances would be that the occupier remained a tenant at will, until agreement on a new lease. Indeed, once Erimus signalled its intention to vacate the premises, it was unnecessary to establish security of tenure up to the date of leaving. Hence, the CoA rejected the landlord’s claim of an inferred annual periodic tenancy.

Tenants and landlords should start new lease negotiations in good time with the aim of reaching an agreement before the existing lease ends. If an agreement has not been formalised before the (contracted-out) lease has expired, the parties should document the basis on which the premises are still occupied by the tenant.

One option would be to sign a formal tenancy at will. This ensures that the tenant is not protected under the 1954 Act, and may terminate the tenancy without giving extended notice, and is not liable for additional rental payments. From the landlord’s perspective, a tenancy at will allows speedier re-possession of the premises.