UK: Battle Of The Tenancies: Tenancy At Will v Periodic Tenancy

Last Updated: 20 April 2014
Article by Jessica McGoldrick

Summary

In the recent case of Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd (2014) EWCA Civ 303 (CA (Civ Div) the tenancy at will trounced its old enemy, the periodic tenancy. This was despite the fact that the negotiations for a new lease (which was the key factor which gave rise to the implication of a tenancy at will) had the pace and impetus of a lazy tortoise. The important fact was that the negotiations never in fact ceased.

Whilst the case shows that slow and steady negotiations can be enough for the court to imply that there was a tenancy at will, the real lesson is not to end up in court in the first place. In the short term, it may seem easier to bury your head in the sand about the legal status of tenant's occupation if the rent is at an acceptable level and being paid regularly. However, the legal status can have a significant impact on notice periods and security of tenure.

The moral of the story in the Erimus case is that parties should act quickly following lease expiry to agree the basis of any ongoing landlord and tenant arrangement and ensure that this is clearly documented so that you don't end up asking the court to imply what was agreed.

Background Facts

In the Erimus case, the Court of Appeal had to consider whether a tenancy at will or a periodic tenancy had been created where negotiations for a renewal lease had been painfully slow following the expiry of the original lease which was contracted out of the Landlord and Tenant Act 1954 ("the 54 Act").

The original lease was for a term of 5 years at an annual rent of £170,209 per annum payable quarterly in advance on the usual quarter days. After the expiry of the contractual term on 31 October 2009, Erimus remained in occupation paying rent at the same rate.

The negotiations for a new lease, which was also intended to be contracted out of the 54 Act, proceeded following expiry of the contractual term, albeit at a snail's pace. The terms of the lease were agreed in June 2011, over 2 years after the contractual expiry. By August 2011, no new lease had been entered into and Erimus informed Barclays Wealth Trustees that they wished to vacate the premises in around March 2012. In June 2012, Erimus gave the landlord formal notice that it wished to vacate in September 2012 and subsequently vacated on 28 September 2012.

The Issue

What was the basis of the tenant's occupation in the period of almost 3 years following expiry of the original lease until it vacated? Was it occupying as at tenant at will or had it become a periodic tenant?

Where there is no express agreement after expiry of a contractual term, the court will imply from what was agreed and the surrounding circumstances the terms the parties intended to apply, including whether the tenant was occupying under a periodic tenancy or a tenancy at will.

The issue as to whether Erimus was occupying under a tenancy at will or a periodic tenancy was important as it affected the notice period which it was required to give in order to vacate and therefore the rent for which it was liable.

As rent was payable annually, if it was a periodic tenancy, it would be an annual periodic tenancy and Erimus should have given at least six months' notice to quit to expire at the end of a period. In this case, the period would have run from 1 November – 31 October each year therefore at least 6 months' notice would have been required to end the agreement on 31 October. Therefore notice given by the Erimus in June 2012 was not sufficient to terminate the lease in October 2012 as it was less than 6 months' notice. The earliest date Erimus could have specified as the termination date in a notice given in June 2012 was 31 October 2013.

However, holding over during negotiations for a new tenancy is a classic instance where the court can imply that there is a tenancy at will if it is clear that the parties did not intend to create a periodic tenancy (see Javad V Aqil [1991] 1 WLR 1007). Either party can determine a tenancy at will at any time.

Round 1 - The High Court Decision

In the High Court, the judge considered that although there were some discussions about a new lease following the expiry of the lease, the parties were not in "the throes of negotiations" (which was a requirement referred to in the Javad V Aqil case). Barclays Wealth Trustees was content for Erimus to remain in occupation paying rent and there had been no push on either side for negotiations.

The judge was somewhat critical regarding the parties' approach to the negotiations, describing the efforts as "desultory" and "half-hearted". The judge seemed to take the requirement for parties to be in the "throes of negotiation" as importing a requirement for there to be a particular intensity of negotiations.

The judge therefore decided that an annual periodic tenancy had been created. As a result, Erimus was liable for the rent due under the periodic tenancy from when it vacated in September 2012 until 31 October 2013.

Round 2 - The Court of Appeal Decision

In over-turning the High Court decision, the Court of Appeal decided that although the negotiations for a new lease were proceeding at a "leisurely pace", the requirement for parties to be in the "throes of negotiations" for a new lease meant "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".

The Court of Appeal recognised that "in commercial terms, the rent was acceptable to both parties and [the Landlord] had no reason to seek possession of the premises." The important factor was that the negotiations for a new lease had not ceased or been abandoned by the parties, in fact agreement was eventually reached in June 2011.

The Court of Appeal therefore held that Erimus had been in occupation under a tenancy at will. As a result, Erimus was not liable to the landlord for any further rent after it vacated as the vacation was sufficient to terminate the tenancy at will and there was no requirement for any notice to be provided.

The moral of the story

This case reminds us that it is important for parties to consider the nature of any landlord and tenant relationship following the expiry of a contracted out lease and to document this agreement as soon as possible following lease expiry.

Where both parties are content with the practical situation and the level of rent, they might give little thought to the legal status of the tenant's occupation following lease expiry. However, the implications arising out of the legal status of a tenant's occupation can be significant in relation to notice periods (as Erimus found out).

Although it was not a factor in this case, another issue which is often a significant concern, for landlords in particular, is the acquisition of security of tenure under the 54 Act which could be acquired if a periodic tenancy has arisen.

It is likely to be of some comfort (to landlords in particular) to know that if negotiations for a new lease are continuing, even if at a slow pace, it is unlikely the Court will consider that a periodic tenancy has arisen. However, there is a limit to how far parties can slow down. In Walji v Mount Cook Land Limited [2002] 1 P&CR 13 the court held that a periodic tenancy has been created in circumstances where the parties had made no progress in executing the lease a number of years after reaching agreement on the terms.

Chronology

  • 9 November 2004: EHL was granted a lease of a property in Middlesborough for a term of 5 years expiring on 31 October 2009.
  • 2005: BWT acquired the freehold reversion of the property.
  • 20 May 2009: EHL's agent wrote to BWT's agent suggesting that discussions should being regarding the grant of a new lease and suggested terms including a 3 year term with annual breaks.
  • 6 October 2009: The parties respective agents met to discuss the new lease term. BWT's agent suggested a 6 year term, breaks every 2 years and an initial rent of £173,764 (a modest increase).
  • 31 October 2009: the original lease term expired.
  • 15 January 2010: EHL's agent emailed BWT's agent with counterproposals regarding the new lease. This appeared to be the first communication between BWT and EHL since the original lease expired. EHL had continued to pay the rents reserved under the original lease until this time. The counter-proposals on behalf of EHL were a 6 year term with breaks after 2,3,4, and 5 years, a rent of £165,00 reviewable after 3 years and the new lease was to be contracted out of the 54 Act.
  • August 2010: BWT appointed new agents.
  • 6 November 2010: EHL's agent emails BHT's new agents to confirm that EHL was holding over under terms or original lease and requesting for the new lease negotiations to be progressed. EHL's agents stated "in the meantime we assume that both sides are content for matters to continue as they currently exist".
  • 15 June 2011: EHL and BWT's agent agreed via an exchange of emails that new terms had been agreed for a new lease for a term of 3 years at a rent of £133,665 with an option to break on 30 June 2013 on 6 months' notice. The target date for execution of the lease was 1 July 2011.
  • 26 August 2011: EHL's agent emailed BWT's agent to confirm that EHL now wished to vacate the property having found an alternative premises. He suggested that EHL were anticipating vacating around March 2012.
  • 3 February 2012: BWT's agent emailed EHL's agent to ascertain current situation.
  • 24 May 2012: EHL's agent suggested 31 August 2012 as suitable date for vacation and asked BWT whether BWT required formal notice.
  • 31 May 2012: EHL's agent wrote to BWT's agent asking it to accept EHL's intention to vacate the property and end its tenancy on 31 August 2012.
  • 21 June 2012: EHL's solicitors wrote to BWT giving formal notice of EHL's intention to vacate the property on 28 September 2012
  • 28 September 2012: EHL vacated

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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