Letting a Commercial Premises - Differing Tenancies

By Matt Rodgers, Partner, Bell & Buxton Solicitors

I am often asked to consider the implications of various types of commercial tenancy.  Broadly, it might be said that there are four main types of commercial tenancy.  A brief consideration of each is given below:

Periodic Tenancy
A periodic tenancy is a tenancy arrangement which may have originally derived from, but is not currently documented by, a contract or lease.  The classic example is where a lease might have expired but the tenant has been permitted to remain in occupation paying rent.   Another example might be where a tenant has been allowed into occupation prior to a formal lease being completed and the legal formalities are never completed. 

In such cases, the tenant occupies the property for a fixed period of time, usually related to the frequency of payment of rent; i.e. if rent is paid monthly, then the relevant period is usually one month.  If rent is paid quarterly, the relevant period is three months.

However, consideration should always be given as to whether a tenant in such a situation might have acquired additional rights to occupy the premises by virtue of the Landlord and Tenant Act 1954 which stipulates that a certain procedure must be followed in order to bring the tenancy to an end.

Tenancy at Will
This simple form of tenancy allows for flexible letting arrangements where commercial premises need to be let for a short while. However, no actual tenancy period is defined so its length is effectively indefinite.  It is quite literally, as the name suggests, a tenancy which can be terminated at the will of either the landlord or the tenant.  To end a tenancy at will, either party can serve notice on the other.  The length of this notice is usually outlined in the agreement and is usually between 1 and six months.

A tenancy at will can be intentionally agreed by the parties, or can arise by implication if a tenant is allowed into occupation of premises and pays rent.  However, it is advised that when granting a tenancy at will, one should avoid inadvertently creating a periodic tenancy (described above) which could necessitate a longer notice period or even give rise to rights arising under the Landlord and Tenant Act 1954.

Licence to Occupy
This is a particularly useful form of agreement when the landlord and the tenant need to occupy the same premises, but does not give rise to a landlord-tenant relationship.  Instead, the relationship is one of licensor-licensee.  Unlike a commercial lease, this does not give the licensee an exclusive right of occupation of the premises. The licensor can come and go as he or she pleases.

Overall, it is shorter and simpler than a commercial lease, but is less secure for both parties.

Commercial Lease
The commercial lease is the longest, most permanent and most complex of the various means of occupying commercial premises,and is generally advised as being suitable for letting premises for a period of one year to 25 years, although terms of 25 years are becoming increasingly less usual.

Its most distinguishing feature is that it gives the owner of the lease exclusive possession rights over the property. The landlord may not come and go as he or she pleases, unless in specific situations stipulated in the lease agreement.

Unlike the licence to occupy, therefore, it is not suitable where the landlord must co-occupy the space.
Commercial leases must be for a fixed period, but they can run on after the lease is ended, most usually giving rise to a periodic tenancy or tenancy at will.

In summary, professional advice should always be taken by a landlord or a tenant who is considering entering into any form of tenancy arrangement.  A Solicitor should always be appointed to advise on the legal and commercial issues of a tenancy.  The rights and responsibilities of a tenancy can vary greatly, and the consequences should always be considered.

Considerations to be taken into account include:

• Whether to opt in or out of the Landlord and Tenant Act 1954?
• What are the rights of renewal or purchase?
• What are the contractual conditions that need to be met at the end of the tenancy?
• Has a schedule of condition been carried out?
• What are the rent review implications?

These and many other aspects need to be considered prior to the commencement of the tenancy to protect the landlord and to prevent a potential nightmare for the tenant.

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