The Court of Appeal has given judgment in another case arising from the falling rents of the recession: Barclays Wealth Trustees (Jersey) Limited v Erimus Housing Limited [2014] EWCA Civ 303. Had a tenant, holding over, who subsequently left, held over under a tenancy at will or a periodic tenancy? Over a year’s rent turned on the decision.

Erimus had a five-year lease of office premises in Middlesbrough, contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954. The annual rent was payable quarterly in advance. The lease expired on 31 October 2009. In May 2009, Erimus’ agent wrote to Barclays’ agents suggesting they start discussions about a new lease. By October 2009, there had been a meeting and Barclays’ agent had proposed terms in writing. Solicitors will know that the whole story would have been completely different if the lease had been inside the act.

The lease expired. The tenant stayed in occupation, paying rent at the previous rate. The landlord appointed different managing agents. By January 2010, the tenant had made a counter-proposal about the new lease, offering a lower rent. The Court of Appeal observes that negotiations continued at a ‘leisurely pace’; the judge at first instance described the same negotiations as ‘desultory’ and ‘lacking impetus’.

But it was clear that such discussions as did take place acknowledged that the tenant was holding over ‘under the terms of the original lease’ and the new rent was to be an annual rent.

By 2012, the tenant had decided to move elsewhere. A notice served by the tenant’s solicitor in May purported to give notice to end the tenancy on 31 August 2012. The tenant actually moved out on 28 September 2012. Was the notice effective?

If the holding over was a tenancy at will, the notice was effective. But if it was not? A yearly rent paid quarterly creates a yearly tenancy (Richardson v Langridge (1811) 4 Taunt 128, 131). If the holding over was a yearly periodic tenancy, common law requires at least six months’ notice to terminate. What is more, that notice must expire on the day before the anniversary of the term commencement. In this case, if there was a periodic tenancy, the notice needed to expire on either 31 October or 30 April in any year. Furthermore, the act would have applied to a periodic tenancy.

Although negotiations were slow, there was no evidence that the negotiations had ceased or been abandoned. It was not possible to say that there was ever a time when the parties ceased to contemplate entering into a new contracted-out lease. The interim arrangement suited both parties. The tenant had continued possession of the premises. The landlord received a rent which was probably equal to or in excess of the market rent.

Not for the first time, the appeal court was faced with a situation where one person took possession of another’s land for payment. Yet the parties had not agreed or directed their minds to one or more fundamental aspects of the transaction. The court was left to step in and fill the gaps in a way which was sensible and reasonable. The two key agreed terms were:

  • The tenant was paying a yearly rent; and
  • The parties were negotiating for a new lease.

While parties are negotiating a new lease, the court will be cautious before inferring an intention to give the occupant more than a very limited interest in land.

A tenant who holds over at the end of his lease is a tenant on sufferance until the landlord consents to the tenant’s possession. With consent, the tenant becomes at least a tenant at will. If the tenant at will continues to pay rent, even a rent previously reserved at an annual rate, that is not inconsistent with a tenancy at will. Specifically, ‘the payment of rent gives rise to no presumption of a periodic tenancy’. Three cumulative factors were relevant here.

First, an almost overwhelming inference that the parties did not intend to enter into any intermediate contractual arrangement inconsistent with the ongoing negotiations. Second, any periodic tenancy would carry with it statutory protection under the act. Finally, the intended new lease, like the old lease, was to be contracted out. Accordingly, Erimus was a tenant at will and their solicitors’ notice had ended the tenancy.

This is a mixed blessing for tenants who are holding over and who did not have security of tenure. The good news is they are not caught by the need to give at least six months’ notice to quit ending on a particular date. The bad news is that they can be required to leave at a moment’s notice.

As parts of the UK see economic recovery, this risk must be increasing. Tenants should either start lease negotiations in good time, or be prepared to pay to document a short tenancy for a few months.

Suzanne Gill is a partner at Wedlake Bell