Continue occupation after an expired lease
Tenancy agreements are becoming increasingly complicated in terms of both understanding and enforcement, Karen English of Weightmans LLP informs us of the logistics of a ‘contracted out’ lease and what it means for the tenant
The Landlord and Tenant Act 1954 provides business tenants with security of tenure in that, providing the lease fits certain criteria within the Act, the tenant will be entitled to a new tenancy at the end of the contractual term and until such time as a new lease is entered into, may continue to occupy on the same terms as the earlier lease.
Whilst the security of tenure provisions in the Act were brought in to protect business tenants from being ousted from their premises, the provisions can be excluded by agreement provided the parties comply with a set statutory procedure. If the procedure is followed, the tenant ends up with what is commonly called a ‘contracted out’ lease.
The procedure for contracting a lease out of the Act however, is strict and this concept was recently reinforced in The London Borough of Newham v Mrs Ngozi Thomas-Van Staden (2008) (“Van Staden”) when a purportedly contracted out lease was held to be a lease protected by the Act due to ambiguity in the definition of the lease term.
For a lease to be effectively contracted out of the Act the lease must be ‘for a term of years certain.’ In Van Staden however the contractual term was defined as “from and including January 1, 2003 until September 28, 2004 (hereinafter called “the term”) which expression shall include any period of holding over or extension of it whether by statute or at common law or by agreement…”
It was the reference to ‘holding over’ in the latter part of the definition that led the Court of Appeal to decide that the lease, despite the original intention of both parties to contract out, was in fact protected by the Act as it was not for a ‘term of years certain.’
The brief facts of Van Staden were that at the end of the fixed term i.e. September 28, 2004, the tenant did not vacate but remained in occupation. The Landlord sought possession of the property via the court. The tenant argued that because she had remained in occupation following the expiry of the fixed term, she now occupied under a periodic tenancy that was protected by the Act. The Court disagreed and made an order for possession holding that the tenancy was not only contracted out during the initial fixed term but also during the additional period of holding over.
The tenant appealed. The Court of Appeal overturned the decision at first instance, holding that the tenant had a ‘protected tenancy’ as the lease was for an indefinite period and was not therefore capable of being contracted out of the Act. The Court of Appeal judgement will sit uncomfortably with any lawyer who has drafted a contracted out lease containing ‘holding over words’ within the definition of ‘term’. In spite of the parties’ intentions, if the lease is a contracted out one but the ‘holding over’ words have been included then the tenant may well enjoy security of tenure.
The Van Staden case could, of course, be overturned or distinguished in the future but whilst it is good law, solicitors acting for Landlords should take heed of the strict interpretation that the Courts have adopted. Landlords would also be well advised to have in place procedures that flag up when a contracted out lease is nearing its end to ensure that the tenant is not in occupation of the premises once the lease expires, or that a new contracted out lease is entered into immediately following the expiry of the existing one.
Commercial Property Solicitor Weightmans LLP
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