A key element of the Landlord and Tenant Act 1954 is the security of tenure it provides for a tenant. This means that the tenancy continues until terminated by procedures specified in the Act (as amended). It is possible for the parties to the lease to agree to contract out of the security of tenure provisions, but an essential component of such exclusion is that the lease must be for a fixed period.
Fixed term lease
This process came under scrutiny in the recent case of the London Borough of Newham v Ngozi Thomas-van Staden [2008] EWCA Civ1414 in which the local authority landlord entered into a fixed term lease for commercial premises, because it was intending to develop the larger commercial centre at Rathbone Market, as part of a regeneration plan. Because of the proposed redevelopment, the landlord was not in a position to grant tenancies, which enjoyed the security of tenure provided by the 1954 Act. However, the Court of Appeal decided that on the interpretation of the actual wording contained in the lease, it was in fact not for a fixed term, and therefore the parties were not entitled to contract out of the security of tenure provisions contained in the 1954 Act.
The parties had entered into a short lease for a term from 1 January 2003 to 28 September 2004. The landlord had taken additional measures for recovery of possession of the premises by obtaining a Count Court Order on 11 December 2003 confirming that the relevant provisions of the 1954 Act (sections 24 to 28) were excluded in relation to this tenancy.
Occupation continued beyond the expiry date
The tenant did not vacate the premises at the end of the period, and so the landlord issued a break notice and brought proceedings against the tenant for possession. The County Court confirmed that the initial fixed term was contracted out of the 1954 Act, and no new tenancy had been entered into during the period after 28 September 2004. The tenant therefore held over on the same terms as the lease, with the effect that the tenant's occupation after 28 September 2004 was also contracted out of the 1954 Act.
A term uncertain?
The tenant appealed on the basis that continuation wording in the lease, which said that the term would include any period of holding over, or extension, was inconsistent with a contracted out term.
The Court of Appeal made its decision mainly on the effect of this continuation wording, concluding that there was no doubt that both sides entered into the original lease on the basis that the tenancy should be excluded from the security of tenure provisions afforded to tenants by sections 24 to 28 of the 1954 Act. However, the provisions of a lease were only able to be excluded if the term created by the lease was, according to the 1954 Act, "a term of years certain". The difficulty posed in this lease was the extended definition of "the term" and the additional wording relating to further periods which included "any period of holding over or extension of it whether by statute or at common law or by agreement". This meant that the term was for an indefinite period, and consequently the tenancy created by the lease was not contracted out of the 1954 Act.
Tenant allowed to remain in occupation
The difficulty for the landlord was exacerbated by the fact that after the date of expiry on 28 September 2004 the tenant remained in occupation. It was not until July 2005 that the landlord served a notice on the tenant requiring her to give up possession within 21 days. The tenant did not comply which led to the claim in the County Court for possession. The landlord also raised an alternative claim for possession based on the tenant's failure to pay the rent punctually.
The matter of the tenant's continued occupation beyond the initial fixed term was discussed in the Court, which observed that the tenant had paid rent on six occasions after the date of expiry of the initial fixed term. The landlord's view was that the whole period of occupation, both initial and extended, together constituted a fixed term for the purpose of the contracting out, and that therefore, the contracting out applied to the initial fixed term and the extension. The Court's opinion, however, was that the ability to contract out could not apply to the extension, due to the uncertain term and therefore security of tenure applied to the continuation of the tenancy.
Another difficulty was commented on. If the lease was to be read as granting no more than a term of years certain, namely the initial fixed term, why, following the negotiations for a fixed term lease and the Court Order, did the landlord permit the tenant to remain in occupation beyond that specified date?
Strictly adhere to fixed term lease terms
The case highlights the difficulty faced by a landlord if it allows an informal continuation of occupancy even on a short-term basis. If the landlord does intend for a tenant to remain in occupation after the expiry of a lease, the preferred route would be to terminate the lease and have documentation ready for the commencement of a new lease immediately following on from the original one. In addition, rent should neither be demanded nor accepted until the new arrangements are formally documented.
It is also essential that any negotiations during that period are clearly defined as being on a "subject to contract" basis, to avoid the landlord jeopardising any defence that a contractual agreement has not yet been entered into between the parties. In this case, the landlord and the tenant were not negotiating new lease terms, and the actions of the parties therefore pointed towards a continuation of the existing lease. When a contracted out lease is due to expire a landlord should always be in a position to recover the premises. If a fixed term is to be relied on, the parties must take the termination date seriously.