Avoiding the unwelcome guest
16 April 2008
Avoiding the unwelcome guest
The basic principles
Where an owner enters into negotiations with an intended business occupier, there are ways in which the transaction can be structured so as to avoid the occupier enjoying statutory rights of renewal pursuant to the Landlord and Tenant Act 1954 (the Act).
The most certain means is to grant a lease which excludes security of tenure. This involves serving a warning notice and obtaining a declaration from the occupier that he has received that notice. The alternatives are:
- A short fixed term occupation
- Licence
- Tenancy at will
Short term occupation
A fixed term tenancy granted for a term not greater than 6 months will not attract security except where either:
- the tenancy contains a provision for renewing the term or extending it beyond the 6 months from its beginning
- or the tenant has already been in occupation for a period which exceeds 12 months. (The tenant is allowed to count occupation by any predecessor carrying out the same business when reckoning that 12 month term).
Thus a “new” tenant can safely be granted a fixed term of 6 months followed by a further term of just under 6 months provided the first tenancy does not include a right to have the second tenancy granted.
Licences
Where the arrangement is intended to create legal relations and the occupier is granted a right to exclusive possession for a fixed or periodic term, then a tenancy arises. The right to receive a rent is not an essential feature of a tenancy.
In a recent case, National Car Parks agreed
- to manage a car park,
- to pay the owner a percentage of profit
- to reserve 40 spaces for the owner
- not to impede the owners “rights of possession”
It was decided that this was a licence. As the main provisions of the agreement were negative in character it was difficult to identify a right to exclusive possession. Further, although the car parking business was clearly under NCP’s control, it was crucial to distinguish that from the possession of the premises. The latter was retained by the owner.
Tenancies at Will
Tenancies at will can be in writing or implied. Written tenancies at will must cover the following:
- They should be terminable at the will of either party.
- There should be no forfeiture clause.
- There should be no notice to quit.
- There should be no break clause.
- There should be no landlord’s right of entry.
- There should be no tenant’s right of alienation.
As to implied tenancies at will, in a leading case, a prospective tenant was allowed into occupation pending agreement of lease terms. It was envisaged that a formal 10 year lease would be granted. Negotiations floundered after three quarterly payments of rent had been made. The occupier claimed the benefit of the Act. It was held that it would be wrong to infer that the parties intended to create a proper tenancy until a formal lease was concluded. The interim arrangements amounted to no more than a tenancy at will despite the quarterly payments of rent.
As with all such issues, professional guidance as to the method to be used when allowing a third party into occupation will avoid difficulties in recovering possession of the property at the end of the day.
Latest Events
- May 2008
Forthcoming Events
