Question: Status of a tenant
I am the landlord of a shop. The tenant, Inlimbo Ltd, was occupying under a five-year lease that was contracted out of the Landlord and Tenant Act 1954 and expired on 31 January 2011. Discussions about a new lease started around nine months ago. I thought Inlimbo was happy to maintain the status quo as it continued to pay the £50,000 pa rent and remained in occupation. However, Inlimbo has just served notice to quit, to expire on 31 December 2013. Does it now have a tenancy that is protected under the Act? Will its tenancy terminate on 31 December 2013?
Answer
It is likely that a periodic annual tenancy has been created. If so, Inlimbo will have security of tenure under the Act. Inlimbo would need to give at least six months’ notice to quit, expiring at the end of the annual period, ie 31 January. The earliest date that Inlimbo could terminate its tenancy is 31 January 2015.
Explanation
Where there is no express agreement after expiry of a contractual term, the court will imply from what was agreed and the surrounding circumstances, the terms the parties intended to apply. Inlimbo appears to be occupying under either a periodic tenancy or tenancy at will.
Periodic tenancy: As rent is paid annually, if it is a yearly periodic tenancy, it would run from 1 February to 31 January. Inlimbo would need to give at least six months’ notice to quit, to expire at the end of a period. The earliest termination date it could specify is 31 January 2015. Its tenancy would not therefore terminate on 31 December 2013. Assuming Inlimbo is occupying for business purposes, it will have security of tenure under the Act.
Tenancy at will: However, holding over during negotiations for a new tenancy is an instance where the court could imply that there is a tenancy at will if it is clear that the parties did not intend to create a periodic tenancy (see Javad v Aqil [1991] 1 WLR 1007). Either party can determine a tenancy at will at any time. Inlimbo must give up occupation in order to terminate the tenancy at will. It would not have acquired rights under the Act.
It appears that Inlimbo is a periodic tenant given that negotiations are no longer active and Inlimbo thought notice was relevant. However, it would be necessary to consider all communications since lease expiry to establish whether you intended to create a periodic tenancy.
In Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd (2013) EWHC 2699, despite there being discussions about a new lease following expiry, the court considered that the parties were not in “the throes of negotiations”. The landlord was content for the tenant to remain in occupation paying rent and there had been no push on either side for negotiations. The court decided that a periodic tenancy had been created.
Question: Service charge changes
My business tenancy is soon to expire and I have applied to court to renew it. I currently pay a sum for rent that includes a fixed service charge contribution. The landlord wants the new tenancy to include a fixed rent and a separate variable service charge. We originally agreed to an inclusive rent because the landlord was proposing to do certain works and I was not prepared to pay for them. He has not done the works, however. Can the court impose a new service charge structure?
Answer
The court has a wide discretion to determine the terms in the renewal lease. However, the landlord must satisfy the court that it should impose a change in the service charge provisions. Here it is likely to be relevant that the original agreement to a fixed service charge contribution was negotiated on the basis that the landlord was going to do certain works. If he is still intending to do those works, that is a strong argument in favour of retaining the original agreement.
Explanation
Under section 35(1) of the Act, absent an agreement between the parties, the court will determine the terms of a renewal tenancy (other than those as to duration and rent) having regard to the terms of the current tenancy and to all relevant circumstances.
As he is seeking to change the current service charge provisions, the burden of persuading the court to do so rests with your landlord. He must establish that ?there are good reasons for the alteration and that it would be fair and reasonable to impose it.
In O’May v City of London Real Property Co Ltd [1982] 1 EGLR 76, the old tenancy included a fixed rent clause covering both basic rent and service charge rent. Despite evidence that standard leases at the date of renewal included variable service charge provisions, the court declined to introduce them as this would shift the risk of fluctuating costs of the provision of services onto the tenant, which would amount to a drastic change in the parties’ relationship.
However, in Edwards & Walkden (Norfolk) Ltd v The Mayor and Commonality and Citizens of the City of London [2012] EWHC 2527 (Ch); [2012] PLSCS 188, Sales J acceded to the landlord’s proposal for a separate variable service charge provision in the renewal lease since the parties always intended that the tenants would meet the cost of the services and, historically, that had been the case. The court was satisfied that reintroducing a variable charge would best meet that agreed principle.
You agreed to a fixed service charge because the landlord was intending to carry out certain works: the implication being that otherwise you would have agreed to a variable charge. If the works are still likely, there is a good basis for keeping to your original bargain. However, if they will not be done, the circumstances may justify a variable service charge in line with market practice and the leases of the other units.
Jessica McGoldrick is an associate at Charles Russell LLP and Tony Beswetherick is a barrister at Enterprise Chambers
Questions on any topic can be e-mailed to egq&a@enterprisechambers.com and egq&a@charlesrussell.co.uk