Dangers of allowing informal occupation of premises - 04/09/2008

A cash and carry business was occupying premises, but an assignment of the lease had never been completed. The landlord had accepted rent, and entered into negotiations to grant the business a new, 21-year lease. This was not concluded either.

Some years later a dispute arose as a result of persistent delay in paying rent and the business requested a new tenancy under the Landlord and Tenant Act 1954. The landlord refused.

The court said that the request was ineffective as the Act only applied if there was a tenancy under a fixed term exceeding one year. However, it ordered a new tenancy on grounds that the business had spent money improving the premises in the expectation that it would be granted a 21-year lease, and in those circumstances it would be unjust not to grant it a new tenancy.

The landlord's claim that the persistent delay in paying rent should stop the court from imposing a tenancy failed because he had accepted late payments for a period of time. His argument that reimbursing the tenant the money spent improving the premises should be enough failed because the business had also invested heavily in building up the business being run at the premises.

If the circumstances had been different, eg the landlord had not accepted late payment of rent or the tenant had not also invested in the business, the landlord's arguments may have succeeded.

Recommendation

• Neither landlords nor tenants should allow occupation of premises under an informal arrangement.
• Landlords should act quickly if rent is paid late.

Related Resources

in the Muckle LLP Resource Centre

• Case law: incoming tenant's wishes when considering outgoing tenant's repairing obligations
• Case law: cheaper to remove restrictions on development in Lands Tribunal than by negotiating
• Employees to be entitled to non-cash benefits during additional maternity leave
• Site Waste Management Plans now required for new construction projects over £300,000.