AN EVER CHANGING SITUATION: since this article was written a further announcement on 28 January was made which proposes further changes to the Pubs Codes in relation to tenancies. See our latest update HERE.
During the last week a number of amendments have been proposed to the Small Business, Enterprise and Employment Bill and not all of these are consistent. For example, one suggests a threshold of a 100 tied pubs for a pub company to be bound by the Pubs Code – although the Government’s proposal is for the Pubs Code to apply to pub companies with 500 tied pubs.
It had also been thought that tenancies at will and some shorter term tenancies (but not all of them) might be excluded from the new Pubs Code, but the Government’s latest set of amendments do not say this will be the case. Here we highlight the confusion this potentially causes – and in 2 subsequent articles in this series on the topic, we’ll take a look at a recent case which puts tenancies at will in context, concluding with some suggested rules as to how deal with them.
Uncertainties for pub companies
Tenancies at will have long been used in the pub sector. The particular attraction has been that a genuine tenancy at will falls outside the Landlord & Tenant Act 1954 but this has now been put into sharp focus by the Small Business, Enterprise and Employment Bill which indicates that the new Act and the Pubs Code will apply to tenancies at will in the same way as they apply to substantive tenancies.
It had been thought that the Government would accept that tenancies at will would not fall within the Pubs Code but an amendment has been proposed by the Government (22 January 2015) whereby tenancies at will are to be regulated by the new Pubs Code even though the proposal suggests that tenancies at will cannot be MRO – compliant tenancies. Some of the proposed changes are not consistent and at the time of going to print it is not known which proposed amendments will be accepted in the final form of legislation.
It is possible that tenancies at will are to be excluded from some of the provisions of the Pubs Code. Short fixed term tenancies and periodic tenancies (these are tenancies which do not run for a fixed period of time, where rent is payable by reference to a period of time – weekly, monthly, yearly etc – and can be terminated by a notice referable to that period of time) are set to fall inside the new Pubs Code despite some speculation that the Government was considering a limited exemption. Periodic tenancies are covered by the Landlord & Tenant Act 1954 in contrast to tenancies at will and tenancies of less than six months.
Accordingly:
- Tenancies at will may now be within the new Act and Pubs Code but fall outside the 1954 Act.
- Periodic tenancies may now be within the new Act and Pubs Code but fall inside the 1954 Act.
- Short fixed term tenancies may now be within the new Act and Pubs Code and may or may not fall inside the 1954 Act.
Finding a path through all of this may have its challenges!
Tenancies at will can be created by express agreement but can also arise by operation of law. This can mean without an express agreement in writing but arising from the circumstances of the case. The classic cases are where a tenant goes in to possession or holds over where a fixed term has expired and, in each case, negotiations are continuing for the grant of a new tenancy. However, a tenancy at will can change in to a periodic tenancy because of changed circumstances and the intention of the parties – again without the change being recorded in writing.
All of this is likely to lead to some difficult situations. Consider these:
- If you let a person into possession as a tenant at will while negotiating a substantive tenancy could that person have a Market Rent Option?
- Is there any advantage in proceeding by way of a tenancy at will – why not sign up what the trade calls a tenancy management agreement for less than six months?
It is possible to conjure up other situations but these give a flavour of the difficult path ahead.
Whilst the Government considers how it is going to deal with all of this, we will take a look in the next articles in this series – to be published over the next 2 months – at how recent case law affects the position for tenancies at will, as well as suggesting some rules to guide you through the subject.
