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Hidden in Plain Sight - Contracted Out Leases (Landlord & Tenant Act 1954)

Updated: Mar 16, 2021

2020/NO.35 - A couple of our recent cases have highlighted how the COVID-19 pandemic can divert attention. Both cases were concerning contracted out leases and both have passed their expiry date. But to lay the ground rules, a contracted-out lease, i.e without the protection of the Landlord and tenant Act 1954, has no automatic right for renewal. Normally, at lease termination, there would be some sort of written agreement between landlord and tenant to grant a new tenancy if both were content for the occupation to continue. Now throw a spanner in the works called the COVID-19 pandemic and there are now a pandora’s box of new considerations. If a new lease has not been agreed, then a simple Tenancy at Will can be created by exchange of letters. Usually this also carries a quite short period of termination if agreed. But hold on, we now slip into a new set of responsibilities.

A Tenancy at Will creates protection under the ’54 Act section 30 (1). To end the tenant’s occupation a statutory notice has to be served and all the attendant procedures followed. If nothing happens, as in both our cases, and the tenant continues in “occupation” for a period of more than six months, a Periodic Tenancy can be automatically created. We use the word “occupation” with care. The fact that the pubs concerned have had to close for the period 23rd March through to 4th July does NOT give an excuse to forgo rent. Technically the tenant in law is still “in occupation”. This works both ways in that the landlord cannot for his part claim that the property has been abandoned during the lockdown. Ironically both pubs still traded during the lockdown but on a much-reduced takeaway basis.

If there has been no contact between landlord and tenant, as in both our cases, the holding over period or implied Tenancy at Will could be set to drift into a Periodic Tenancy. There is no bang up to date case law except for Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Limited {2014] which confirmed that where the tenant continued to pay rent and there was no dialogue between the parties that a Periodic Tenancy was automatically created after six months. The landlord appealed the decision which went to the Court of Appeal. They looked at exactly the same facts and overturned the earlier decision. They held that there was no requirement that the negotiations had to be neither regular nor meaningful. Different strokes, different folks.

Where does this leave our two cases? Both are in no man’s land on being able to survive financially as both are in urban High Streets. It is unlikely that any new agreements will be signed whilst the trading uncertainty continues. Rent is still legally owed so the landlords will hope to recover some or part of that rent when and if the market picks up. If the landlord offers a new tenancy will the tenant want to take up the offer ? The new tenancy if made available will it see a significant fall in rent? Does the landlord want to confirm that position or let the liability of rent owing continue at the previous (now unsustainable) level? Does the landlord really want an empty property on his hands which for sure will never let at the previous rent? What happens with the Authorised Guarantee Agreements? A wire wool ball of uncertainties not least if the landlord tries to evict the tenant if the tenant is not actually in the premises at the time.

Curiously it may well be in the tenant’s interests to stick to a Tenancy at Will rather than a Periodic Tenancy. Why? You can get out of a tenancy at Will much quicker, if simply documented. An annual Periodic Tenancy requires a six-month notice period BUT expiring on the anniversary of the original lease term. This could be anything up to eighteen months away. There are no easy solutions to our two cases. It would be better to create certainty by entering into an agreed Tenancy at Will. The negotiating of an affordable rent for that Tenancy at Will is the elephant in the room. So far, the elephant is having a doze but will have to wake up sometime soon!


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