By Red Kite Commercial property lawyer Kate Kurtz
The case of Valley View Health Centre v NHS Property Services [2022] highlights why a commercial lease should be completed soon after the parties commence negotiations and the parties should put in place a temporary Tenancy at Will if negotiations become protracted, so that the parties know where they stand and can more easily walk away if they need to.
What are the key features of a Tenancy at Will?
- Terminable at any time by either party usually on a month’s notice;
- Does not provide security of tenure under the Landlord and Tenant Act 1954 (there is no automatic right to renew the agreement with the landlord or to remain at the property)
How does a commercial lease differ?
- If over 6 months – has security of tenure unless it is contracted out – tenant can renew at the end of the fixed term unless the landlord can demonstrate statutory grounds to oppose renewal;
- Not terminable at any time by the parties (unless contracted out the 1954 Act and a mutual break clause is agreed)
What happened in Valley View:
- A tenant went into premises in 2007, in 2013 the landlord changed. Rent was paid but no formal agreement was reached;
- There appear to have been no negotiations or few negotiations for the first four years, then negotiations were on and off;
- The court held that despite the length of time which passed, there was a Tenancy at Will and implied service charge liability which the tenant had to pay
- There is essentially no time cap on negotiations for a tenancy at will
Conclusion
If you are a landlord seeking to negotiate a new lease with an existing tenant who is “holding over” (i.e. a tenant who had a contracted out lease, but it has expired), or if you are in negotiations with a completely new tenant, consider a formal Tenancy at Will, whilst you negotiate. It could be at the old rent if the tenant will not agree to the new rent but at least you can terminate the arrangement within a short notice period if negotiations do not succeed. Similarly for a tenant, if you find that you do not agree the terms being proposed in a formal lease, and negotiations are becoming drawn out, consider a temporary Tenancy at Will. You may end up paying a month’s rent or two but it gives more certainty than any implied tenancy and avoids debate about the nature of the tenant’s occupation.
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