Holding over under an expired commercial lease
By Fenella Eddell
Landlords or tenants of commercial buildings may find that a commercial lease that they entered into a number of years ago has expired without either party realising. In these circumstances, a new legal arrangement of either a “periodic tenancy” or a “tenancy at will” will have been created.
A periodic tenancy exists where there is a landlord and tenant relationship and rent is paid by reference to a particular time period (e.g. monthly or quarterly). A tenancy at will exists where there is a tenancy on terms that either party may determine it at any time. It can be difficult to identify which of the two exists. It will depend on a number of factors, such as acceptance of rent and ongoing negotiations. However, a 2014 case showed that it is difficult for tenants to argue that they should be treated as having a new periodic tenancy when holding over under an expired lease.
It is important to determine whether a periodic tenancy or tenancy at will exists, as this will govern the process needed to end the occupation. For a periodic tenancy, if rent is paid quarterly then at least three months’ notice will need to be served on the other party, expiring at the end of a quarter, or six months if rent is paid half yearly and so on. A tenancy at will can be terminated simply by either party letting the other know that they wish to end the tenancy, including by the tenant giving up possession or the landlord demanding it.
A tenancy at will does not have protection under the Landlord and Tenant Act 1954, which grants an automatic right of renewal to tenants of business premises, whereas a periodic tenancy (of more than six months) does. This means that notices prescribed by this act will also need to be served before a landlord or tenant can terminate a periodic tenancy.
Alternatively, if the parties want to continue the arrangement then it should be regularised as soon as possible by negotiating a new lease and possibly putting an express tenancy at will in place in the meantime. The grant of a new lease will bring about an automatic surrender of any periodic tenancy that has been created.
On a practical note, landlords and tenants should diarise key date in any lease they enter into in order to avoid ending up in this position in the first place.
Fenella Eddell is a solicitor in the property department at Barker Gotelee, Suffolk solicitors.