When is a tenancy at will not a tenancy at will? When it is a periodic tenancy

Part II Landlord & Tenant Act 1954 ("the 1954 Act") provides a tenant that is in occupation of premises for the purposes of its business with a statutory right to renew its lease at the end of the lease term. Provided that a tenant has enjoys the protection of the 1954 Act, upon the expiry of the lease term, the tenant's right of occupation is not automatically terminated, rather the tenant may remain in occupation until the tenant voluntarily leaves or the Landlord has serves at least 6 months' notice to quit upon the tenant.

Parties can exclude the provisions of Part II of the 1954 Act, with the resulting lease being known as a 'contracted out' or 'excluded' lease. Where such a lease expires, the tenant has no automatic right to remain in occupation. It is not uncommon, however, for the parties to negotiate a new lease with the tenant remaining in occupation of the premises during the period of negotiations despite the lease term having expired.

There is often an assumption that the tenant's ongoing occupation of premises after the expiry of an excluded lease is pursuant to a tenancy at will, a key characteristic of such a tenancy being that it can be terminated without notice. The case of Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [2013], however, highlighted that parties should not assume that any ongoing occupation by a tenant of premises previously let under an excluded lease will be pursuant to a tenancy at will.

Erimus occupied premises owned by Barclays Wealth Trustees (Jersey) Limited under an excluded lease. The lease commenced on 9 November 2004 and ended on 31 October 2009 with the yearly rent being just over £170,000.

Before the lease ended, the parties' agents engaged in discussions regarding a new lease on similar terms as the existing lease. No agreement was reached and the lease expired but Erimus remained in occupation. Brief discussions took place between the parties over the following months but there was little in the way of meaningful negotiations.

In June 2011, some 20 months after the lease expired, Heads of Terms for a new lease were agreed. However, no new lease was completed, rather shortly afterwards Erimus gave notice that it required larger premises and intended to move. There followed another period of limited correspondence between the parties before Erimus' agent gave formal notice on 30 May 2012 of Erimus' intention to vacate. Rather than give notice that it intended to vacate immediately, however, as would be the norm when occupation was pursuant to a tenancy at will, Erimus gave notice that it intended to vacate on 31 August 2012.

On 21 June 2012, Erimus' solicitor gave notice that Erimus wished to terminate its tenancy and that the letter was intended to give not less than 3 months' notice to terminate on 28 September 2012. On 26 June 2012, Barclays' solicitor refuted the validity of the notice, explaining that the premises were occupied by Erimus under a yearly tenancy, which would require at least 6 months' notice expiring at the end of the tenancy period, being 31 October in any given year. If that was correct, the earliest date upon which the tenancy could be brought to an end was 31 October 2013.

On 25 September 2012, just under 3 years after the lease term expired Erimus vacated the premises and the keys were given up.

Barclays issued proceedings for a declaration, the issue for the Court to determine being whether Erimus had occupied the premises after the expiry of the excluded lease under a tenancy at will or under an implied yearly periodic tenancy. Mr J Jarvis QC, sitting as Deputy High Court Judge, considered the parties conduct following the expiry of the lease. He noted that Erimus had continued paying rent as per the annual rent under the lease, that negotiations for a new lease had ceased and that the tenant had not served immediate notice, but instead had provided Barclays with notice of the intention to move out but then remained in occupation for some time after the notice was given.

He concluded that the parties behaviour was not consistent with a tenancy at will, rather their behaviour suggested the existence of a periodic tenancy. He duly held that a yearly periodic tenancy had arisen. Consequently, Erimus was liable for a further 13 months' rent to 31 October 2013, amounting to approximately £185,000.

The case provides a stark warning to Landlords and Tenants to guard against creating a situation where, either expressly or impliedly, notice is required to be given to terminate the Tenant's occupation of a property after the expiry of an excluded lease. In this instance, the existence of a periodic tenancy was prejudicial to the tenant. There will, however, be occasions where a tenant will be grateful for the determination that a periodic tenancy exists, such providing them with far greater security of tenure than exists with a tenancy at will which could stymie a Landlord's plans for a property.

Whenever possible, parties should regulate the ongoing occupation of a property by a tenant after the expiry of an excluded lease through a written Tenancy at Will and endeavour to promptly come to a decision as to whether a new lease is to be entered into or not.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.