What happens when a business tenant remains in occupation after the expiry of its lease?

Difficulties can arise when a business tenant remains in occupation of a property when its right to do so has come to an end. This may be because the tenant has a lease that does not carry security of tenure under the Landlord and Tenant Act 1954 (“the Act”) and the lease has expired. Alternatively the lease may be protected by the Act, but, following service by the landlord or tenant of notices under section 25 or section 26 of the Act, the tenant has not taken any steps to issue a claim for a new lease or extend time for doing so.

Often when a tenant remains in occupation it is because negotiations for a new lease are ongoing, and usually in this case the tenant will have a tenancy at will – a type of unprotected tenancy which can be ended at any time.

However, there is a risk that, if the situation is not resolved promptly, the parties can find themselves with an implied periodic tenancy. The legal status of the tenant will always depend on the specific circumstances of each case, but the key factors the courts will look at are whether rent is being paid and accepted, and whether the parties are actively engaged in negotiations for a new lease.

It is often landlords who will want to avoid a periodic tenancy arising, as any such tenancy will be protected by the Act (even if the expired lease was itself outside the Act). This means that the tenant will have security of tenure, and the landlord’s ability to terminate the lease will be significantly restricted. Sometimes, though, an implied periodic tenancy could disadvantage the tenant, if the tenant in fact decides that it no longer wants a new tenancy and wants to vacate the premises – the tenant may find itself liable for rent and service charges for a lengthy notice period.

Given the uncertainty in this area and the risks for both landlords and tenants if a periodic tenancy arises, parties should not allow the situation to drift after the expiry of a lease or section 25/section 26 notice. Landlords should ensure that they do not demand or accept rent, and should consider putting written tenancies at will in place if negotiations for a new lease are ongoing. If negotiations stall, immediate action should be taken to regain possession of the premises.