Tenancies At Will & Periodic Tenancies

In Valley View Health Centre (a firm) and others v NHS Property Services Limited, the Court had to consider the legal relationship between several GP practices (Tenants) and NHS Property Services Limited (Landlord) where the basis of the Tenants’ occupation was largely undocumented.

Valley View Health Centre and others v NHS Property Services Limited

Case background

As part of a significant reorganisation of the NHS in 2013, the Landlord took over the management of around 3,600 properties (Estate). Around one-third of the Estate was occupied by Tenants where, for many years, there had been no lease agreement in place to record the terms of their occupation.

Prior to the reorganisation, a few issues had been raised in relation to the Tenants’ liability for service charges. This was due, in part, to the relevant Primary Care Trusts (who were previously responsible for the Estate) often failing to recover the full amount of the non-reimbursable element of the service costs.

After the reorganisation, the Landlord sought to recover the reimbursable element of the service costs and a dispute between the parties arose. The Tenants ended up issuing proceedings for declarations that the Landlord was unilaterally seeking to alter the terms of their tenancies and the Landlord counterclaimed for its own declarations.

Whereas the Court was asked to consider the recoverability (or not) of the service charges being levied by the Landlord, this note does not focus on that element. Rather, it considers the Court’s analysis of the status of the undocumented tenancies in the context of the Landlord/Tenant relationship.

Court rulings – a tenancy implied from conduct or a tenancy at will?

In two of the cases (Valley View Health Centre and St Andrews Medical Centre), the Court had to decide whether the Tenants occupied their respective premises on the basis of a tenancy implied from conduct (which would likely have enjoyed the security of tenure under the Landlord and Tenant Act 1954) or under the terms of a tenancy at will.

In the Valley View Health Centre case, the Tenant had occupied the premises since 2007 without a lease agreement in place. Initially, there had been negotiations for the grant of a formal lease of the premises between 2007 and 2011, although these were carried out “very slowly, with lengthy gaps”.

In the St Andrews Medical Centre case, the Tenant had continued to use the premises after a 15-year contracted-out lease had expired in 2019. After that point, the Tenant had been in undocumented occupation of the premises and no negotiations for a new lease had taken place. Whilst negotiations for a new lease were contemplated, they broke down due to a dispute over service charge liabilities.

The Court ruled in both cases that the Tenants occupied the premises as tenants at will. When announcing his decision, the Judge emphasised the point that when a Court is required to make a declaration to determine the basis upon which a tenant occupies:-

In the Valley View case, it didn’t matter that little negotiations had previously taken place for the first four years whilst the Tenants occupied the premises. Initially, there had been negotiations for the grant of a formal lease of the premises between 2007 and 2011 but these never came to fruition. The Judge commented that:-

The Judge added that there did not need to be any continuing negotiations for a tenancy at will to be determined, concluding that:

With regards to the case of St Andrews Medical Centre, despite the absence of ongoing negotiations with regards to the grant of a new lease (unlike in the case of Cardiothorasic v Shrewdcrest Ltd [1986] 1 WLR 368 to which the Judge referred), the Judge found it likely that there would have been such negotiations were it not for the service charge dispute which had put matters on hold. Indeed, at the hearing during the proceedings, the Tenant conceded that was the case. The Judge, therefore, found that both parties intended that a new lease would be granted and would be excluded from the protection of the 1954 Act. In those circumstances, the Judge felt it right to infer a tenancy at will.

Comment

This decision should reassure commercial landlords that tenants will not automatically acquire security of tenure upon the expiration of a commercial lease. A good deal of caution, however, should still be exercised and both landlords and tenants alike should be alive to the consequences of commercial leases expiring and, best case, put in place an express, written agreement to properly record the intentions of the parties during any intervening period.

The Judge, in the above cases, was likely influenced by the Court of Appeal’s decision in Javad v Aqil [1991] 1 All ER 243 which, in very simplistic terms, says that where a person is allowed into occupation of premises and pays periodic rent whilst negotiations for a formal lease are being agreed, they are to be classed as a tenant at will only. The same could be applied to persons who remain in occupation after the expiration of a contracted out lease. That said, in Barclays Wealth Trustees (Jersey) Ltd v Erimus Housing Ltd [2013] EWHC 2699, the Court reached a very different view on facts that were similar to the instant case and so caution needs to be exercised.

The cases above demonstrate that each dispute will very much turn on its own facts and so seeking proactive advice is essential.