Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd

Landlord and tenant – Periodic tenancy – Business premises – Lease contracted out of Part II of Landlord and Tenant Act 1954 – Appellant tenant holding over following expiry of lease – Parties negotiating for new lease – Respondent later giving notice to end tenancy after finding alternative premises – Whether yearly periodic tenancy or tenancy at will arising after expiry of previous lease – Whether respondent giving sufficient notice – Appeal allowed The respondent was the landlord and the appellant was the tenant under a lease of commercial premises for a term of five years at a rent of £170,209 pa, payable quarterly in advance, plus service and insurances charges. The lease was contracted out of the provisions of Part II of the Landlord and Tenant Act 1954 regarding security of tenure for business tenants and it therefore came to an end on the expiry of the contractual term at the end of October 2009. Before that date, the parties began to negotiate for the grant of a new lease, again to be contracted out of the 1954 Act, but those negotiations were still ongoing by the time the lease expired. The appellant remained in occupation thereafter, paying the rents reserved by the expired lease. In June 2011 the parties confirmed by email that they had agreed terms for the renewal of the lease on a three-year term at a rent of £133,665 pa, with an option to break at the end of June 2013 on six months’ notice. The target date for the execution of the new lease was early July 2011 but execution did not occur on that date. Instead, in August 2011, the appellant informed the respondent that it wished to vacate the premises, probably in March 2012, to move to a more suitable building that it had the opportunity of buying. In June 2012, it gave formal notice to the respondent to terminate its tenancy in late September 2012. The appellant argued that the notice was ineffective to end the tenancy and applied to the court for declaratory relief in its favour. In the court below, the deputy judge found that a yearly periodic tenancy had arisen, to which the 1954 Act applied and which could be terminated only by six months’ notice served to expire at the end of October 2013. He rejected the appellant’s contention that it had held over under a tenancy at will, on the same terms as to rent as the expired lease, and had validly terminated that tenancy by giving three months’ notice. In reaching his conclusion, the deputy judge found that, by August 2010, there were no active negotiations for a new lease but that the parties had not intended that the respondent could, at its whim, simply take proceedings to evict the appellant without notice. He held that an agreement for a periodic tenancy should be inferred as the only form of legal arrangement that would guarantee the appellant security of tenure until its intended office move: see [2013] EWHC 2699 (Ch); [2013] PLSCS 238. The appellant appealed. Held: The appeal was allowed. Where a party held over after the end of the term of a lease, it did so, without more, as a tenant on sufferance until the landlord consented to its possession. With such consent, it became at least a tenant at will. Its continued payment of the rent was not inconsistent with that position even where the rent reserved by the former lease was an annual rent. The payment of rent gave rise to no presumption of a periodic tenancy. Rather, the parties’ contractual intentions fell to be determined by looking objectively at all relevant circumstances. The most obvious and most significant circumstance in the instant case was the fact that the parties were in negotiations for the grant of a new formal lease. In those circumstances, as in any other “subject to contract” negotiations, the almost overwhelming inference would be that the parties did not intend to enter into any intermediate contractual arrangement that would be inconsistent with them remaining parties to ongoing negotiations. In the landlord-and-tenant context, that would usually lead to the conclusion that the occupier remained a tenant at will pending the execution of the new lease: Javad v Aqil [1991] 1 WLR 1007; [1990] 2 EGLR 82; [1990] 41 EG 61 applied. The inference was likely to be even stronger where any periodic tenancy would carry with it statutory protection under the 1954 Act: Cardiothoracic Institute v Shrewdcrest Ltd [1986] 1 WLR 368; [1986] 2 EGLR 57; (1986) 279 EG 69 applied. That point had additional force in the instant case, where the intended new lease, like the old lease, was to be contracted out of the 1954 Act. The deputy judge had been wrong to conclude that the appellant was in possession of the premises under a yearly periodic tenancy. His conclusion was based on two elements: first, the half-hearted progress of the negotiations up to June 2011 and, second, the importance to the appellant of having security of tenure up to at least March 2012. However, on the face of it, the parties had continued to negotiate until mid-June June 2011, when they came to terms. Although the negotiations were not active and continuous, it was not possible to say that there was ever a time when the parties ceased to contemplate entering into a new contracted-out lease. There was no requirement for any particular intensity of negotiations before they could be regarded as “ongoing”; all that was required was that the negotiations were continuing, in the sense that both parties remained of the intention that there should be a new lease on terms to be agreed. The interim arrangement suited both parties because it gave the appellant continued possession of the premises and the respondent a rent that was probably equal to or in excess of the market rent. Moreover, there was no significant overlap between the first and second factors relied on by the deputy judge. The negotiations did not extend beyond mid-June 2011, while the desire for security of tenure up to March 2012 did not become a factor until late August 2011. Nothing had occurred before that date from which it was possible to derive any agreement or understanding about the appellant having security of tenure for a specific period of time. The parties were simply negotiating for a new lease and the appellant remained in possession in anticipation of that event. In commercial terms, the rent was acceptable to both parties and the respondent had no reason to seek possession of the premises. Continued possession was a given so long as the negotiations for a new lease were in progress. There nothing to suggest that either party intended to grant a new lease except on the terms that were ultimately to be agreed. There might be cases where the negotiations either broke down or came to an end but the tenant was allowed to remain in occupation paying the rent and other outgoings. In time, the correct inference might be that the parties had chosen to regulate their legal relationship by something other than the grant of a new long lease and a periodic tenancy might then be implied. However, the instant case was very different. Both parties had continued to work on the assumption that a new lease would be granted and the negotiations, although painfully slow, had never been abandoned; in June 2012, they had reached fruition in agreement on the terms. That was not consistent with the creation, before June 2011, of a yearly tenancy in advance of the grant of a new lease or, in particular, with one that would be protected under the 1954 Act: Walji v Mount Cook Land Ltd [2002] 1 P&CR 13; [2001] PLSCS 2 distinguished. Nor had a yearly tenancy arisen after August 2012, since that would be inconsistent with the appellant’s expressed intention to vacate. Adam Rosenthal (instructed by Bond Dickinson LLP) appeared for the appellant; Emily Betts (instructed by Reed Smith LLP) appeared for the respondent. Sally Dobson, barrister