The case of Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd has highlighted the potential financial implications for business tenants holding over following the expiry of a tenancy outside the Landlord and Tenant Act 1954 (“the Act”).

In this case Barclays granted a 5 year lease to Erimus which expired in 2009. The lease was outside the Act. Erimus remained in occupation for over 2 years whilst new terms were being negotiated. It eventually decided it needed bigger premises and so agreed with Barclays that it would stay in occupation until it found somewhere suitable. Erimus subsequently gave three months’ notice to Barclays of its intention to vacate the premises.

Barclays said that 3 months’ notice was insufficient. It argued that following the end of negotiations for a new lease, Erimus’ continued occupation of the premises for rent meant that a new yearly periodic tenancy had arisen and it applied to the court for a declaration to that effect. The court agreed with Barclays and held that a yearly periodic tenancy had indeed arisen. In order to bring that tenancy to an end Erimus had to have served a notice to quit giving not less than 6 months’ notice to expire on an anniversary of its commencement date.  The end result was that Erimus had to pay an additional 13 months rent, which amounted to approximately £185,000, for a premises it did not need.

This case is a reminder that holding over can be an issue for tenants as well as landlords. If a tenant, occupying a premises following the end of a contracted out tenancy, discontinues negotiations for a new lease but carries on paying rent, it will very probably create a new periodic tenancy by implication of law, and only be able to bring that new tenancy to an end by giving the requisite contractual notice, which may result in the tenant remaining bound by it and the obligation to pay rent for a significant period of time. Accordingly, both landlord and tenant need to ensure that any continuing occupation is properly documented by way of a tenancy at will or a short term tenancy which is also contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954.

If you require further information about business tenancies, please speak to Jamie Coulthard, Senior Associate in Druces LLP’s Property team.