06 January 2014 #Commercial Real Estate
The situation that arises where a tenant remain in occupation after the term of the lease has expired can be complicated, particularly where the lease is not a protected lease and is excluded from the renewal provisions of the Landlord and Tenant Act 1954. Where leases are protected, the statutory framework makes the position very clear.
A protected lease
As most landlords are aware, the tenant has the right to remain in occupation under the terms of the existing lease on the expiry of a protected lease. The Landlord is entitled to collect the same rent and other monies due under the lease and the tenant is bound by the same lease obligations.
Once the contractual term has expired, the tenant may determine the lease at any time on not less than three months’ notice in writing to the landlord.
However, if a landlord wishes to terminate the lease and not grant a renewal lease to the tenant, he will only be able to do so if he is able to prove one of the specified grounds in Section 30(1) of the Landlord and Tenant Act 1954 for example the landlord wishes to occupy the site itself or redevelop the site. If the tenant wishes to renew its lease and the landlord is able to prove one of the specified grounds in Section 30(1), compensation will be payable by the Landlord to the Tenant and this is calculated having regard to the rateable value of the premises;
Lease excluded from the renewal provisions of the Landlord and Tenant Act 1954 (the unprotected lease)
Where a lease is excluded from the renewal provisions of the Landlord and Tenant Act 1954, the Landlord should always take the necessary action to ensure that the tenant does not remain in the premises past the expiry date without having been granted a new lease. The landlord should try and confirm the tenant’s intention with regard to the premises several months before the expiry of the term. If, however, by a few weeks before the expiry of the lease, the landlord still does not know whether the tenant is staying or leaving, an open letter should be sent demanding possession of the property upon expiry of the lease to the tenant.
The landlord should also consider whether to refer to Section 1 of the Landlord and Tenant Act 1730, which entitles the landlord to claim double the yearly value of the premises (ie twice the current rental value) from the tenant who remains in occupation after expiry of its lease. This may well persuade the tenant to reach earlier agreement as to a new lease or to vacate.
If the Landlord would like to enter into a new lease, a separate letter should also be sent to the tenant stating that the landlord does not intend to issue possession proceedings at court for a short period until after a stipulated date to allow negotiations for a new lease to take place.
If negotiations do commence for the grant of a new lease after the expiry of the old lease, it is generally accepted that the tenant remains in occupation under a tenancy at will which can be terminated by the Landlord if agreement is not reached on the terms of a new lease.
If, however, no negotiations are entered into by the landlord and the tenant and the landlord does not demand possession of the premises, the risk is that the tenant will remain in possession under a periodic tenancy. The more time that passes between the expiry of the contracted out lease and the landlord taking action, or if the landlord demands rent for a period after the expiry of the lease, the more likely the former tenant’s continued occupation will be deemed to be a periodic tenancy. The difficulty with a periodic tenancy for a landlord is that it can potentially give the tenant a right to a lease renewal under the Landlord and Tenant Act 1954. Accordingly, if a periodic tenancy arises and the Landlord then decides that it wishes to obtain vacant possession of its premises, it will be obliged to serve a Section 25 Notice under the Landlord and Tenant Act 1954 and to prove one of the grounds stipulated in Section 30(1) of the Landlord and Tenant Act 1954 (referred to above) which will allow it to regain possession. If one of the Section 30(1) grounds cannot be proved, then the tenant will have the right to remain in occupation under a new lease at the then current market rent.
It is very important where a lease is excluded from the renewal provisions of the Landlord and Tenant Act 1954, to ensure that the landlord either obtains vacant possession on the expiry of the lease or has made it clear to the tenant that it is willing to negotiate for a new lease of the premises. Merely allowing the situation to continue and continuing to collect rent from the tenant is likely to result in the landlord losing its right to regain possession of its premises unless it is able to prove one of the “specified grounds” under the Landlord and Tenant Act 1954. If the landlord is able to prove a “specified ground”, compensation will then be payable to the tenant because rights have been acquired under the Landlord and Tenant Act 1954. This can be avoided if the necessary action is taken.