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Legal Developments in The Legal 500 United Kingdom 2011

Being a helpful Landlord may be a mistake!

February 2010 - Real Estate & Property. Legal Developments by Bircham Dyson Bell LLP.

More articles by this firm.

Most landlords and their solicitors try to resist the impulse to be helpful, however, in these recessionary times when landlords are concerned to avoid empty space, there may be the temptation to take shortcuts to ensure a letting proceeds. In circumstances where it is intended that Part II of the Landlord and Tenant Act 1954 (the 1954 Act) should not apply to the tenancy, i.e. that the tenant should not have the benefit of security of tenure, then occupation before the lease has been finalised (and the appropriate ‘contracting-out’ steps taken) is a potentially dangerous step and needs to be taken only when the landlord has fully comprehended the potential consequences.

A recent case, Hutchison and others v B & DF Limited [2008] EWHC 2286 (Ch), highlighted the Courts view on these arrangements. In the case, terms had been agreed and a draft lease had been sent to the tenant's solicitors for signature by the tenant. The tenant did not sign the lease and it was not completed before the tenant was let into occupation. The Court held that despite the fact that the lease had been agreed and was intended to be signed, there was an oral agreement between the parties and, as there was no further element of negotiation required, this amounted to a legal lease (s54 of the Law of Property Act 1925, a parol lease).

In practice, there are often circumstances where it is essential that the tenant has occupation before a lease is completed. Occupation should be documented by way of a tenancy at will. As tenancies at will are not included in the definition of ‘tenancy' under the 1954 Act, if a tenant occupies under a tenancy at will then they will not have the security of tenure protection of the 1954 Act. However, the tenancy at will must be drafted accurately to make sure it cannot be interpreted as a tenancy falling within the 1954 Act, notwithstanding its label.

Tenancies containing provisions that are inconsistent with a tenancy at will, such as provisions for determination on anything other than immediate notice, forfeiture or rent cessor provisions will not be tenancies at will. The point of a tenancy at will is that either party can bring it to an end immediately and anything that takes away from this position means that it is more likely that a tenancy, with security of tenure under the 1954 Act, has been granted. Remember that side letters will form part of the overall factual matrix and therefore you cannot have a tenancy at will with immediate determination provisions which are then waived, or varied by a side letter between the parties.

The moral of the story is that leases should be completed before parties are allowed occupation or possession for fitting out or storage. In circumstances where it is essential that the tenant is let into occupation before the lease is completed, then the Landlord must fully appreciate the risks involved. The tenant could, in the future, argue that their occupation prior to the completion of the lease and the formalities for ‘contracting out', meant that it had in fact a tenancy under the 1954 Act with security of tenure.

 

By Rose-Marie Purcell, Senior Associate.

Email: Rose-Mariepurcell@bdb-law.co.uk 

 

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