Five steps to take before a lease expiry

A recent case has highlighted the risks for both tenants and landlord of not documenting the terms of continued occupation by a tenant after the lease expiry.

In the case of Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd, a contracted out lease had expired.

The tenant remained in occupation following the lease expiry and continued paying rent but no contract was entered into with the landlord to formalise the basis on which the tenant continued to occupy the premises.

During the continued period of occupation the tenant informed the landlord that it had found new premises and gave the landlord three months’ notice to vacate.

The landlord said that, rather than the continued occupation being by way of a ‘tenancy at will’, an annual periodic tenancy had arisen so a longer notice period was required to bring the continued occupation to an end.

The landlord was successful with this argument and the tenant was held to pay rent plus a service charge and insurance rent for another 13 months. These types of cases are usually determined on the conduct of the parties, so in the interests of certainty for both landlord and tenant the basis of the continued occupation should be documented.

The case illustrates the following reminders for landlords and tenants where a contracted out lease is to come to an end:

• Advice should be sought at an early stage before expiry of the lease, not only for the purposes of documenting proposed continued occupation,  but also to identify obligations that need to be complied with on the expiry, such as dilapidations and other yielding up provisions.
• If the tenant is going to stay in occupation after the expiry of the lease, the basis of the tenant’s occupation should be documented before the expiry of the lease.
• If negotiations for a new lease are unlikely to have been finalised at the expiry of the lease, but it is intended the tenant will continue in occupation, then a ‘tenancy at will’ should be put in place as a temporary measure. Failure to do so can leave the tenant exposed to being found to have a periodic tenancy, as seen in the case above, and also leave the landlord exposed by the tenant obtaining security of tenure for the continued undocumented occupation.
• If a new lease or ‘tenancy at will’ has not been agreed for the period at the expiry of the lease, a decision by both parties on whether the tenant should continue in occupation or vacate the property should be made after careful consideration of the consequences.
• Consideration should also be given to whether rent should be accepted by the landlord if the tenant’s occupation continues after the expiry of the lease without documentation being agreed.

For more advice on this, or any other commercial property law matter, please contact Simon England on 01772 258321 or Simon.England@harrison-drury.com