Tenancies at will – Part 3: Setting some rules

In this final part of our series on the subject of tenancies at will, we look at some rules on how to deal with them. This follows our commentary in January in which we referred to the uncertainty over tenancies at will as a result of amendments proposed to the Small Business, Enterprise and Employment Bill. To put this in context we have also provided a detailed commentary on the recent case Barclays Wealth Trustees (Jersey) Limited –v- Erimus Housing Limited, which relates to tenancies at will.

Tenancies at will: the rules

1. You can create an express tenancy at will by signing an agreement or it can arise – through operation of law – by the circumstances of the case.

2. It is best to use tenancies at will through periods of transition or change. The Courts may look behind an express agreement if it is sham – particularly if it is not one of the two classic cases namely (a) allowing a tenant in to occupation and (b) allowing a tenant to remain in occupation after a tenancy ends but, in each case, in anticipation of terms being agreed or while negotiations continue for a new lease.

3. If no express agreement is entered in to then, in the cases set out in paragraph 2, the law will usually infer that the parties did not intend to enter in to any intermediate contractual arrangement which would be inconsistent with their remaining as parties to the continuing negotiations.

4. If there are circumstances where paragraph 2 does not apply and there is no express agreement, then, although you must look at all of the circumstances of the case, and if there are no continuing negotiations, there is a much higher chance of there being a periodic tenancy.

5. There is no rule which says that payment of rent, by itself, is evidence of a periodic tenancy.

6. A tenancy, in existence immediately after a fixed term expires, is a tenancy at will. This is subject to one point. In the Erimus case negotiations had commenced before the fixed term expired and it was against that back drop that a tenancy at will arose. This might not have been the case if those negotiations had not started before the expiry of the term. Accordingly, the better rule is that you should commence negotiations before the term expires in order to create the tenancy at will which arises immediately after the expiry of the fixed term.

7. Continue negotiations and try to avoid material gaps where nothing happens. In Erimus nothing happened for quite long periods of time and progress towards an agreement was at a snail’s pace. However “negotiations continuing” means both parties having the intention that there should be a new agreement on terms to be agreed and they have not abandoned that notion. In Erimus, however, negotiations appear to have ended in August 2012 but COA disregarded that

8. There is no six month rule for tenancies at will. Many operators have held the view that a tenancy at will cannot continue for more than six months without it converting into a periodic tenancy. The writer does not know where this has come from but fears he may have had some part in it. It may have derived out of some or all of the following:

• In the pub industry it is generally better to have fewer tenancies at will for reasons of stability in the estate.
• If it goes on longer than six months it might not be the case that negotiations are continuing (Erimus blows that out of the water because negotiations went on for at least 18 months).
• The longer it goes on the more likely it is that someone will do something inconsistent with a tenancy at will continuing. Six months is a reasonably manageable period of time in that context.

9. Despite Erimus, if you want to terminate a tenancy at will the safer course is to serve notice to take effect immediately. You are likely to allow period of time for the tenant to vacate in the ordinary course but that does not mean you can serve a notice to quit quoting any period of time. Counsel in Erimus appears to have conceded, without argument or discussion that “ ….[there] was… a tenancy at will…the notice given on 21 June 2012 which expired on 28 September 2012…. was effective to terminate the tenancy”. However this cannot be relied on as setting a rule that a tenancy at will can be terminated by giving whatever notice you want to.