Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd

Lease – Business premises – Periodic tenancy – Defendant tenant holding over following expiration of lease – Parties negotiating terms of new lease – Defendant wishing to terminate tenancy on three months notice – Claimant seeking declaration of periodic tenancy requiring six months notice – Whether defendant occupying premises as periodic tenant or tenant at will – Declaration granted Until the expiry of a lease on 31 October 2009, the defendant tenant held the property under a lease dated 9 November 2004, for a term of approximately five years expiring on 31 October 2009. The rent was £170,209 per annum, together with service charges, insurance charges and value added tax, as applicable. On 29 December 2005 the claimant landlord was registered as freehold owner. Before the expiry of the lease, the defendant started negotiations for a new lease with the claimant but failed to reach an agreement. However, the defendant remained in occupation, paying rent, pending the outcome of the negotiations. On 30 May 2012, the defendant sent a formal letter of intent to vacate on 30 May 2012, with a vacation date of 31 August 2012. Subsequently, the defendant’s solicitor wrote on 21 June 2012 indicating that the defendant wished to terminate its tenancy and that the letter was to give at least three written months notice to terminate on 28 September 2012. The claimant said that the premises were occupied by the defendant on a yearly basis, which would require notice of at least six month, expiring with the end of the lease period on 31 October 2013.  The claimant applied to court for a declaration that the defendant had an implied secure annual tenancy. The practical question was whether rent for some 13 months, approximately £185,000, had to be paid by the defendant to the claimant for the period to 31 October 2013. Held: The declaration was granted. Where property was let at the will of the lessor, the tenant had no certain or sure estate because the lessor might put him out at any time. A tenancy or a lease was an interest in land which generally sprang from a consensual arrangement between two parties. Where there was no express agreement, the law would imply from what was agreed and all the surrounding circumstances the terms the parties were to be taken to have intended to apply. Payment of rent on a periodical basis was an important factor. It was legitimate to have regard to the relevant statutory protection in determining whether or not acceptance of rent was a factor from which a new tenancy could be created. The court had to consider the intentions of the parties from what was agreed and the surrounding circumstances and draw what appropriate inference could be made to show whether there was a periodic tenancy or a tenancy at will: Doe D Nicholl v M’Kaeng [1830] 10 Bd&C 721 , Longrigg, Burrough and Trounson v Smith [1979] 2 EGLR 42 and Javad v Aqil [1990] 2 EGLR 82 applied. The fact that the parties had not yet agreed terms would be a weighty factor in ascertaining their intention. They could not sensibly be taken to have agreed that a tenant should have a periodic tenancy when he had been permitted to remain in possession merely as an interim measure in the expectation that all would be regularised in due course, when terms were agreed and a formal lease granted. So long as the parties were negotiating larger terms, caution had to be exercised before inferring or imputing an intention to give to the occupant more than a very limited interest, be it a licence or tenancy. The court had to beware of inferring or imputing from conduct such as payment of rent or the carrying out of repairs, where the explanation lay in the parties’ expectation that they would be able to reach agreement on the larger terms, an intention to grant a lesser interest, such as a periodic tenancy, which the parties had never contemplated. There was no rule that, where a tenant held over after the determination of a previous tenancy, a tender or acceptance of rent would raise the presumption of a periodic tenancy. The court had to look at the intention of the parties and all the surrounding circumstances to ascertain the willingness to contract and the necessary intent to form a contract. Where a contractual relationship was said to arise from conduct the onus was on the party relying on the contract. The holding over during the negotiation for a new tenancy was a classic instance of a case in which the only relationship which it was necessary to imply was a tenancy at will: London Baggage Co (Charing Cross) v Railtrack plc [2000] PLSCS 99; [2000] EGCS 57 and Walji v Mount Cook Land Ltd [2001] PLSCS 2; [2002] 1 P&CR 13 applied. In all cases where there had been a holding over after the expiry of a fixed term, the question arose whether the conduct of the parties implied a periodic tenancy. In the present case, the clear inference was that the claimant had been content for the defendant to remain in occupation and pay the rent in the expectation that they would in due course reach agreement. A relationship had developed in which it was accepted on both sides that the landlord would not take proceedings to evict the tenant without notice. Both sides plainly accepted that notice would be relevant and the occupation was on that basis. Parties could not in law agree a term of indeterminate duration. One could not agree to give exclusive possession for an indefinite time subject to simply giving notice: Lace v Chandler [1944] KB 368, Prudential Assurance Co Ltd v London Residuary Body [1992] 36 EG 129; [1992] 2 AC 386 and Mexfield Housing Co-operative Ltd v Berrisford [2011] PLSCS 265; [2011] 46 EG 105 (CS); [2012] 1 AC 955 considered. In the present case, it was clear that the defendant expected to have some protection. The premises were its principle offices, with substantial equipment and were essential for the way in which its business was operated. It could not have taken the risk of eviction at a moment’s notice. The claimant had allowed the situation to develop as it did and in fact created protection. It was a consensual occupation which had lasted for a substantial period of time. The commercial reality was that notice had to be given, because the parties were in a relationship of landlord and tenant operating on a periodic basis. Emily Betts (instructed by Reed Smith) appeared for the claimant; Adam Rosenthal (instructed by Bond Dickinson) appeared for the defendant. Eileen O’Grady, barrister