In our commentary in January on the subject we referred to the uncertainty over tenancies at will as a result of amendments proposed to the Small Business, Enterprise and Employment Bill. These seemed to imply that tenancies at will were not excluded from the Pubs Code and left a number of unanswered questions.
To throw more light on the subject of tenancies at will it is helpful to look at them in the context of a recent case Barclays Wealth Trustees (Jersey) Limited –v- Erimus Housing Limited, which went to the Court of Appeal last year. In this part of our series on tenancies at will we explore what this means – and in the final part of the picture we will issue some rules on how to deal with TAWs next month.
Case update: tenancy at will or periodic tenancy?
The most recent case has left the position regarding tenancies at will more than a little confused. The decision of the High Court in Barclays Wealth Trustees (Jersey) Limited –v- Erimus Housing Limited was subsequently reversed in the Court of Appeal in early 2014. The reversal of the decision by the Court of Appeal did not substantively change the principles outlined in the judgement of the High Court (although it does contain one or two surprises) but certainly applied those principles in a very different way. The writer prefers the view of the High Court, rather than the Court of Appeal, and the reasons for this will become obvious in this article.
Facts of the case
The sequence of events in this case will be familiar to many within the pubs sector. In this particular case:
- The tenant held the property under the terms of a lease which expired on 31 October 2009.
- This lease was contracted out of the Landlord & Tenant Act 1954.
- Before the expiry of the lease, on 31 October 2009, the tenant started negotiations with the landlord for a new tenancy. In particular, on 6 October 2009, proposals were put forward for a rent increase and with some other changes. It was also proposed that there would be further discussions.
- Although the lease expired on 31 October 2009, nothing further happened until January 2010 when the tenant wrote to the landlord discussing various terms including, as with the expired lease, contracting out of the Landlord & Tenant Act 1954.
- Nothing then happened until 16 November 2010 when the tenant wrote to the landlord referring to conversations about car parking spaces and recording that specific proposals for lease documentation had not been supplied and asking whether the Landlord was content for matters to continue “as they currently exist“.
- On 15 June 2011 the tenant wrote to the landlord saying that agreement, subject to lease, had been reached and solicitors were instructed to settle documentation on the basis of agreed heads of terms. This suggests that discussions had taken place in the meantime and it looked as if agreement had been reached but, as it transpired, nothing further happened to document the apparent agreement.
- The tenant then appeared to have reviewed its occupational requirements and wanted larger accommodation. An offer was made by the Landlord for more space and this was set out in an e-mail dated 25 August 2011.
- The tenant, on 26 August 2011, indicated that they were looking at a new build proposal and said that they intended vacating around March 2012 and suggested continuing to hold over, paying rent as they had to that date.
- Nothing happened until 3 February 2012 when the landlord wrote to the tenant asking for an update and, although there seemed to be no further correspondence, there were conversations taking place but the content of the conversation is not stated in the case report. However, the context suggests that these conversations did not relate to the grant of a new lease but, rather, the vacating of the premises by the tenant.
- On 30 May 2012 the Tenant sent a letter of intent to vacate with the vacation date being 31 August 2012.
- On 21 June 2012 the tenant gave three month’s written notice to terminate on 28 September 2012 and, in the event, vacated on 25 September 2012, almost three years after the previous lease has expired.
Was this a tenancy at will or was it a periodic tenancy?
The significance lay in the fact that a periodic tenancy (rent was expressed to be payable at an annual rate) would be an annual or yearly tenancy and a minimum six months notice would be required and, during that period of time, a large amount of rent would become payable. This would not be the case for a tenancy at will.
The Court of Appeal reversed the decision of the High Court and decided that this was a tenancy at will and not periodic tenancy. The reason given is essentially that even though negotiations were proceeding at a snail’s pace “both parties remain[ed] of the intention that there should be a new lease on terms to be agreed”.
The decision of the Court of Appeal is very surprising and in this writer’s view we should be cautious in placing much reliance on it. The reasons for this view are:
- In August 2011 the tenant told the landlord he was looking at a new build. There is no evidence of negotiations for new tenancy after that date. Quite the opposite, as the tenant had said he was planning to vacate the following March.
- In February 2012 the landlord asked the tenant for timescales for relocating.
- On 30 May the tenant sent a letter “of intent to vacate” on 31 August 2012.
- On 21 June 2012 the tenant wrote to the landlord indicating that the tenant now wished to terminate its tenancy and the letter was to give three months written notice to terminate on 28 September 2012. In the event, the tenant vacated on 25 September 2012.
- The reason why a tenancy at will is called a tenancy at will is because the tenant at will has no sure or certain interest and the landlord can put him out at any time. The tenancy is truly at the will of both of the parties.
- It is of the essence that the tenancy at will can be ended by either the tenant or the landlord at any time. The case law on this is lengthy but a short example will explain. In one case a tenancy was granted to a person for the rest of her life or until terminated by her on 4 week’s notice. The provisions for termination (i.e. having to give 4 week’s notice) were inconsistent with a tenancy at will and this was not a tenancy at will. The conclusion you can draw from this is that a tenancy at will cannot last for a fixed period of time in the future.
- A tenancy at will can be terminated by notice in writing and also by the actions of the parties if they do something inconsistent with the continuation of their will that the tenancy should continue as tenancy at will. An example of this is if the landlord enters the premises to carry out repairs without the consent of the tenant.
The case reports show that in August 2011 the tenant told the landlord he was looking at a new build and this clearly means the tenant did not want a new lease. None of this is discussed in the COA decision and for that reason we should be cautious in relying on that case. The logic of the High Court decision is much to be preferred.
It is, obviously, the case that a tenancy at will can change in to a periodic tenancy by agreement by the parties and also as a result of a course of action. If a landlord and tenant agree to carry out a scheme of refurbishment or undertake trade promotions or settle and start to implement a business plan for the future all or any of these can be viewed, in context, as evidence of an intention that the tenancy should not continue at the will of the parties but has changed to a more permanent arrangement.
This is because the right to remain in occupation for a period of time in the future is inconsistent with the right of the landlord to put the tenant out at any time. However, a conclusion you could draw from this case is that a notice to quit at a date in the future does not, of itself, convert a tenancy at will in to a periodic tenancy. This cannot always be true and is subject to some limits. These will be set in our next article in our series, in which we will suggest some rules relating to how to deal with tenancies at will.