Verbal Business Tenancies

Tenancies without signed agreements

Sometimes a Landlord will let a Tenant into occupation, without getting the Tenant to sign any form of Tenancy Agreement. The Tenant simply agrees to pay an agreed rent. Nothing is said about such matters as repair, service charge contribution and security of tenure.

Later on, the Landlord approaches the Tenant with a view to the Tenant signing a proper form of Tenancy Agreement. Obviously, this draft Agreement should be read in detail and advice taken on its terms but generally, it is likely to deal with those important issues, which were missing from the original negotiations.

Clearly there is little advantage to the Tenant in signing. He will either be taking on extra obligations (to repair), extra expense (to pay a service charge contribution) or limit his freedom of action (the right to apply to the Court for a new Lease).

If the Tenant is building up his business with a view to its sale as a going concern in the foreseeable future, the Tenant may well wish to have a Lease or tenancy agreement in writing as part of the assets to be sold as a going concern in later years. If such considerations are not of importance to the Tenant, he may prefer to continue the rather more flexible arrangement enjoyed at present.

He may wish to put Kasler Solicitors LLP as a "buffer" between himself and the Landlord. Sometimes it is better to get a third party to say "no"! If there are a number of tenants in the estate or development, it might be sensible for them to club together to share the cost of representation.

Be aware that the Landlord is unlikely to spend money on the estate or development, if he is not getting the cost covered. The price of refusing to take this additional expense may be a gradual deterioration in the quality of the area. The Landlord may also seek to bring the verbal tenancy to an end by serving six months' notice under Section 25 of the Landlord & Tenant Act 1954.

If the Tenant is genuinely occupying the premises for the purposes of his business, he will have a right to a new Lease provided: -

• He has been a good Tenant, paying the rent.

• The Landlord does not require the premises back for re-development.

• The Landlord does not require the premises back for his own purposes.

The Tenant will need to apply to the Court for a new Tenancy. There is a strict time period within which he must do this.

The Landlord will no doubt argue before the Court that the new tenancy should be in writing (inevitable) and that it should contain the new obligations (not inevitable). The Court has to "have regard to" the terms of the old tenancy.

However, this does not mean that the new tenancy should slavishly contain only those terms appearing in the old one. It may well be that the Landlord can persuade the Court that a new format of Lease with new obligations should be imposed. In this case, the counter argument would be that the rental element should be reduced to bring the Tenant back to the same level of expenditure. The arguments on both sides can become quite involved and case law is changing the perception of lawyers in this area all the time.

Related topics you may find useful:

Commercial Leases

Leases

Property - Commercial

Call Michael Breeze on 07900 195 195 or call 0845 270 2511 to set up an appointment