Holding-over – the pitfalls

• Real estate dispute resolution
• Real estate litigation

21-10-2013

Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2013] EWHC 2699

Any property manager will be mindful of the risk of creating a periodic tenancy by demand and acceptance of rent, where a tenant remains in occupation following the expiry of a contracted-out lease.  Periodic tenancies must fall within the Landlord and Tenant Act 1954, so allowing this situation to develop inadvertently can be a serious and costly error.

In this case, though, the risk fell on the tenant, which incurred an additional thirteen months’ rental liability as a result. 

There was nothing remarkable about either the facts or the law.  The contracted-out lease came to an end on 31 October 2009; there were initially some moves to negotiate a new lease, but then an acceptance that the tenant was holding over on the previous terms; heads of terms for a new contracted-out lease were eventually agreed, but no new lease was ever signed; finally, in August 2011, the tenant suggested that it should continue to hold over to March 2012, without any objection from the landlord.

In the event, the tenant vacated in September 2012, and the question became whether (a) the tenant had validly given three months’ notice to quit ending on 28 September 2012, or (b) on the basis that there was a yearly periodic tenancy, it was required to give at least six months’ notice, to expire on the anniversary of the term (31 October 2013).

The judge concluded that it was accepted on both sides that the landlord would have to give notice to terminate the tenant’s occupation, and that the landlord had been content to allow that situation to develop, with the tenant having the protection of the 1954 Act.  A yearly periodic tenancy had arisen, and the tenant was liable for the rent up to 31 October 2013. 

There is sometimes an acceptance that if a tenant holds over and is negotiating terms for a new lease, they must be in occupation pursuant to a tenancy at will – they have no security of tenure, and their tenancy can be terminated without notice. This case illustrates that the true position is more nuanced. Any impetus to negotiate and conclude a new lease had in reality disappeared at an early stage, and there was no true negotiation going on.

Whether landlord or tenant, there may be a significant risk in allowing negotiations to drift.