When a commercial lease expires, the legal status of the tenant’s continued occupation can have significant consequences for both landlord and tenant.
In our earlier article Expiry of a Lease Protected Under the Landlord and Tenant Act 1954: Options and Strategic Considerations, we explored what happens on expiry of a lease protected under the Landlord and Tenant Act 1954 (“LTA”).
This article discusses the two most common forms of post-expiry occupation following the end of a lease that has been contracted out of the security of tenure provisions under the LTA: periodic tenancies and tenancies at will.
What Is a Periodic Tenancy?
A periodic tenancy may be implied by law if the tenant remains in occupation and continues to pay rent after the lease ends. This type of tenancy automatically renews at intervals corresponding to the rent payment schedule (e.g. monthly, quarterly, or yearly). To terminate a periodic tenancy, notice must be given to expire at the end of a period of the tenancy.
A periodic tenancy attracts security of tenure under the LTA. In practice, this means the tenancy will not come to an end unless and until it is terminated in accordance with the relevant statutory framework. The landlord cannot simply require the tenant to leave and must serve a notice under section 25 of the LTA and, if it wishes to oppose the grant of a new tenancy, establish one of the statutory grounds of opposition set out in section 30(1) (such as the landlord’s intention to redevelop or occupy the premises itself). The tenant, meanwhile, has the right to apply to court for the grant of a new tenancy. Regaining possession can therefore be a protracted and costly exercise, with no guaranteed outcome.
What Is a Tenancy at Will?
A tenancy at will is a flexible arrangement with no fixed term, allowing either party to terminate at any time without notice. Crucially, it does not confer security of tenure under the LTA.
A tenancy at will can be express (i.e. formally documented between the parties) or implied.
Why landlords want to avoid periodic tenancies
Most landlords will want to avoid the creation of periodic tenancies due to the following implications:
- Security of tenure: Periodic tenancies cannot be contracted out of the LTA and therefore if a periodic tenancy has arisen then it will be protected under the LTA.
- Statutory process and notice requirements: The statutory process for obtaining vacant possession is onerous and may require court proceedings, which can significantly delay the landlord recovering the premises compared to a tenancy at will.
- Unintended rights: Tenants may gain rights to renew or extend their occupation, or oppose possession claims, affecting a landlord’s ability to plan for the future of the premises.
Case Law Overview
The nature of the tenant’s occupation, whether it is a periodic tenancy or tenancy at will, often depends on whether lease renewal negotiations are active and ongoing.
Recent cases affirm this approach as follows:
Valley View Health Centre & Ors v NHS Property Services Limited [2022] EWHC 1393 (Ch)
The court had to determine a number of issues between five GP practices and their landlord, NHS Property Services Limited. In two of the cases (Valley View and St Andrews) the court was required to decide whether the practices occupied under the terms of a tenancy at will or a periodic tenancy.
Valley View Health Centre
- The GPs in the practice first occupied the premises in 2007, the parties intending to enter into a formal lease. This did not materialise and discussions were resurrected in 2011, when it was mooted that Valley View would take an assignment of the landlord’s underlease. Sporadic negotiations continued until the dispute arose in 2019.
- The practice contended it occupied under a periodic tenancy given the payment and acceptance of rent since 2007;
- The practice also argued that a gap in negotiations between 2007 and 2011 was too long for there to be a tenancy at will;
- The practice submitted that for a tenancy to be a tenancy at will, it was necessary to demonstrate that the parties were in the ‘throes of negotiation’ – Javad v Aqil [1991] 1 WLR 1007 CA;
- However, the court referred to the more recent case of Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2014] 2 P&CR 4, CA where the parties had been engaged in prolonged lease renewal discussions. Here, the Judge interpreted the reference in Javad to the ‘throes of negotiation’ as meaning ‘no more than that the negotiations should be continuing in the sense that both parties remain of the intention that there should be a new lease on terms to be agreed.’
- Held: Despite long periods without negotiation, the tenant’s occupation was on the basis of a tenancy at will as the parties’ intention to agree a new lease had persisted, notwithstanding the interruption between between 2007 and 2011. This decision demonstrates that there is theoretically no time limit for a tenancy at will.
St Andrews Medical Centre
- In contrast to Valley View, the GPs in the practice remained in occupation after expiry of the lease (known as ‘holding over’), paying rent whilst negotiating new terms.
- The court separately considered the case of Cardiothoracic v Shrewdcrest Ltd [1986] 1 W.L.R. 368 which concerned whether a period of holding over resulted in a periodic tenancy or a tenancy at will. In that case, the tenant remained in occupation and successive extensions were negotiated for a period of almost two years. During that period, an increased rent was negotiated and paid. The Judge held it was a tenancy at will given the tenant was holding over pending agreement on the terms of a new tenancy.
- Held: Despite an absence of ongoing negotiations, the court held the arrangement was a tenancy at will, concluding negotiations would have taken place but for a service charge dispute which put matters on hold. That stand-off prevented the parties from agreeing the intended contracted-out lease.
Walji & Ors v Mount Cook Land Ltd [2000] EWCA Civ 356
- In contrast to the above two cases, the discussions concerning future occupation were not considered to be sufficiently active or sufficiently connected with the tenant’s continued occupation to demonstrate that the occupation arrangement was merely temporary pending a new lease. The parties’ conduct was objectively held to have gone beyond a mere tenancy at will or a temporary holding arrangement.
- Held: the court therefore inferred a periodic tenancy.
The prevailing approach favours a tenancy at will where lease renewal negotiations are ongoing, even if rent is paid regularly and negotiations are slow or sporadic. However, as Walji demonstrates, the mere existence of negotiations is not decisive. The court will assess objectively whether the tenant’s continued occupation is genuinely temporary pending agreement of a new lease, or whether the parties’ conduct in fact points to a periodic tenancy. The more remote or disconnected the negotiations are from the terms of the tenant’s continued occupation, the greater the risk that a periodic tenancy will be inferred.
Practical Steps for Landlords
To avoid the inadvertent creation of a periodic tenancy, landlords should consider the following steps in the period leading up to and immediately following lease expiry, particularly where the tenant’s intentions regarding future occupation are uncertain or it appears unlikely that a new lease will be completed before the current lease expires:
- Open letter: Before expiry, instruct solicitors to write to the tenant on an open basis, making clear that the landlord requires vacant possession on expiry of the lease and does not consent to any continued occupation.
- No acceptance of rent and other payments: Neither the landlord nor its agents should demand or accept rent or any other payments from the tenant in respect of any period after expiry of the lease. If a payment is received, it should be returned promptly. Where a payment is retained for any reason, the landlord should confirm in writing that acceptance is without prejudice to its right to possession and does not constitute consent to continued occupation or the creation of a new tenancy.
- Deferral of proceedings: If the landlord wishes to negotiate a new lease, write to the tenant confirming that the landlord is deferring possession proceedings for a defined period, specifying the date, solely to allow negotiations to take place. This reinforces that any continued occupation is temporary, rather than an open-ended arrangement.
- Express tenancy at will: Where continued occupation is anticipated, require the tenant to enter into a formal tenancy at will before or on expiry of the lease. The tenancy at will should include express provisions confirming that:
- the arrangement is determinable at will by either party;
- any sums payable by the tenant are in the nature of an occupation charge or licence fee and are not to be treated as rent;
- the tenant acknowledges that the LTA does not apply and that no security of tenure is conferred; and
- the arrangement will terminate automatically if a new lease is not completed by a specified long-stop date.
Conclusion
The distinction between a periodic tenancy and a tenancy at will carries significant practical consequences for landlords.
A periodic tenancy, once created, affords the tenant security of tenure rights under the LTA, making it potentially difficult, time-consuming and costly to recover possession.
Whilst courts have shown that ongoing lease negotiations are a strong indicator of a tenancy at will, Walji is a clear reminder that the existence of negotiations alone does not provide a safeguard. Landlords should take early and thoroughly documented steps to protect their position and seek specialist legal advice well in advance of lease expiry.
To discuss the content of this article, please contact our Commercial Property team.
