The important difference between periodic tenancy and tenancy at will

The Court of Appeal has provided further judicial guidance on the approach to be adopted in determining whether a tenant that is ‘holding over’ after the expiry of its lease is doing so under a new periodic tenancy or a tenancy at will.

The ruling, in Barclays Wealth Trustees (Jersey) Ltd & anr v Erimus Housing Ltd, confirms that there will need to be good evidence to create the necessary inference that the parties intended to enter into a periodic tenancy. Otherwise the default position will be that a tenancy at will exists.

This has important implications in terms of the extent of security of tenure that the tenant will enjoy if and when the landlord requires vacant possession of the property.

What’s the difference and why does it matter

Periodic tenancies are tenancies which exist over reoccurring periods of time, usually calculated by reference to the rent payment periods (monthly, quarterly, annually). Business tenancies that take this form will still be entitled to the statutory protection of the Landlord & Tenant Act 1954 (the Act).

The Act imposes a strict procedure for bringing a tenancy to an end assuming that certain criteria are satisfied which means that a landlord will not be able to recover possession quickly or easily if the tenant is not prepared to vacate.

Conversely, tenancies at will are terminable on immediate notice by either party. They do not have the protection of the Act and therefore the tenant will not have any security of tenure.

What does the ruling mean for landlords?

Although this case is helpful for landlords who do not wish tenants to acquire security of tenure because it restricts the circumstances in which a periodic tenancy could arise, the downside is that a landlord’s rental income could potentially disappear overnight if a tenant serves notice to quit and the landlord is unable to re-let the property for a period of time.

What does the ruling mean for tenants?

The likely inference of a tenancy at will that can be terminated at any time by a landlord could have serious implications for a tenant’s commercial interests, especially where the tenant employs staff or has spent money on an expensive fit-out, although at the same time the tenant could benefit from the flexibility of being able to leave at a moment’s notice if it has cash-flow issues or is looking to expand or re-organise its business.

Whether you are a tenant or a landlord, the unintended consequences that can arise if a tenant holds over can be avoided if appropriate advice is taken before the end of the lease term.

For more information on this, or any other property litigation matter, contact Colin Fenny on 01772 258321. Colin is a director at Harrison Drury solicitors in Preston and specialises in litigation and dispute resolution.