The Court of Appeal has recently given judgment on a case which highlights falling rents following the recession. In the case of Barclays Wealth Trustees v Erimus Housing Limited (2014), the tenant came to the end of a five year lease in October 2009. The lease was excluded from the statutory right of renewal under the Landlord and Tenant Act 1954.

In May 2009, the tenant wrote to the landlord suggesting they start discussions about a new lease, proposing a lower rent. By the time the lease expired in October 2009, there had been a meeting and terms proposed in writing. According to their Lordships, those negotiations continued at a “leisurely pace”, and it was acknowledged that the tenant was “holding over under the terms of the original lease”. The landlord received a rent which was probably equal to, or in excess of, the market rent. Discussions between the landlord and tenant continued during 2010 and 2011, but by 2012 the tenant had decided to move elsewhere. A notice was served by the tenant’s solicitor in May 2012, purporting to give notice to end the tenancy on 31 August 2012, but the tenant actually moved out on 28 September 2012.

The argument before the Court was whether the tenant was holding over under a yearly periodic tenancy (which requires at least six months’ notice to terminate, expiring on the anniversary, or half anniversary, of the term commencement), or whether this was a tenancy at will, which could be brought to an end on much shorter notice.

The Court of Appeal found that this was a tenancy at will, which favoured the tenant on this occasion because they were not liable for the further rent which the landlord was claiming. However, tenants in this situation will need to be cautious because it means that they can be required to leave on short notice.

This is an important decision for a fairly common scenario, post recession, where landlords, tenants and agents are negotiating a renewal of an excluded lease.

If you have any questions or queries about the above, please contact the Commercial Property team to discuss how we can help you.