In our latest commercial property blog, Hayley Bamber looks at the various legal positions created when landlords allow a tenant to occupy a property without formal documentation, and the resulting consequences of not having a written lease.
We often get enquiries from landlords where they have allowed business tenants into occupation of their property without any formal documentation being entered into. There are a number of different types of legal interest that can exist in this scenario. These include:
Licence to occupy
A licence to occupy is a personal right for the occupier to use the property. It is simply permission for the licensee to do something on a licensor’s property, and does not create an estate in land. One of the key indications of a licence is that the licensee does not have the right to exclusive possession of the premises. For example, they may share the property with the landlord or another licensee. A licence can be brought to an end at any time, giving the licensor complete control.
Tenancy at will
A tenancy at will, unlike a licence, grants a tenant exclusive possession of a property. One of the key features of a tenancy at will is that it can be determined by either party at any time. A tenancy at will is usually used by parties in cases where a person is let into occupation until a new lease is negotiated and rent is paid or where a person is allowed to continue in possession of the premises until negotiations relating to a new lease take place. The important point to note is that if, for any reason, the negotiations fail and the occupier still remains in occupation, a periodic tenancy might potentially be imposed.
A periodic tenancy might potentially be created by oral agreement between the parties or by implication, and the payment of rent. The period for which the tenancy may be determined by reference to when the rent is paid.
Unlike the other legal interests explained above, the issue with a periodic tenancy is that a landlord cannot terminate it without first serving a notice upon the tenant.
Further problems can be caused as a periodic tenancy cannot be contracted out from the security of tenure provisions contained within the Landlord and Tenant Act 1954. There is strict rules and procedure in place for terminating a tenancy protected by this Act. Briefly speaking, the landlord will need to serve a notice of between six and 12 months, be able to evidence specified grounds and possibly pay compensation to the tenant.
The other major problem for a landlord is that if the tenant has security of tenure, and none of the grounds for opposing a new lease apply, the tenant will be entitled to a new lease on similar terms. A landlord may not have complete control of the terms which they may wish to impose. If the parties cannot agree the terms (such as allowed use, alienation and payment of rent), then the terms may need to be determined by the court, taking control away from the landlord.
One of our previous blogs explains the difference between a period tenancy and a tenancy at will in more detail.
Fixed term leases
The parties can agree to a fixed term lease orally though is less common than a periodic tenancy. In these circumstances the lease would be protected under the 1954 Act, unless the contracting out procedure has been followed before the tenant went into occupation of the premises.
The lessons for landlords
To prevent an unintended tenancy from arising, it is important for landlords to clearly document the type of legal interest which is to be created. Where a tenant will be in occupation for a short period of time, then landlords are advised to enter into either a written licence to occupy or a tenancy at will as these have the advantage of allowing a landlord to end quickly without grounds.
On the other hand, if the tenant is intending to occupy the premises for a longer period and the landlord wants to secure this future letting, then landlords should consider entering into a written lease for a fixed period in order to clearly document the terms under which occupation is to be granted.
To avoid the tenant obtaining security of tenure, a landlord should ensure that the lease is contracted out under the LTA 1954, or alternatively, allow the tenant to occupy under a licence or tenancy at will.
For more information on the law surrounding landlord and tenant issues, contact Hayley Bamber on 01772 258321.