Occupation Arrangements:
A Summary And Some Pitfalls
by Crispin Carpenter and Naomi
Cunningham
16 April 2013
Introduction
• Types of occupational arrangements
• Overview of the Landlord and Tenant Act
1954
• Telecomms/data apparatus agreements
• Renewable energy apparatus agreements
• Scenarios – The University of Avalon
• Q&A
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Types of occupational
arrangements
• Lease
• Tenancy at Will
• Licence
Cont’d….
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Types of occupational
arrangements
• Differences:
• Lease
• Grants an estate in land
• Binds and benefits successors
• Significant statutory and legal protection for occupier
• Tenancy at Will
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Type of lease
Terminable by either party at any time at will
No notice required
Little statutory and legal protection for occupier
• Licence
• Purely a personal right/permission
• Little statutory or legal protection
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Licences - warning
• Beware granting licences to occupy
• Easy for licence to be a lease
• A licence granting exclusive possession
(particularly for a licence fee) is likely to be a
lease
• It doesn’t matter if it’s called ‘licence’
• Relocation clauses – but exercised in practice?
• ‘Sham’ licences will not work
Cont’d….
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Licences - warning
• "The manufacture of a five pronged
implement for manual digging results in a
fork…even if the manufacturer insists that
he intended to make and has made a
spade.“
• "Parties cannot turn a tenancy into a
licence merely by calling it [a licence].“
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Tenancies at Will - warning
• A tenancy at will may be or become a more
formal lease if its terms are inconsistent with an
arrangement terminable at will
• For example:
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Termination notice period required
Fixed term
Forfeiture provisions
Rent suspension provisions
Been in existence for a long time
Tenant must pay rent in advance for a lengthy period
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Short term leases - warning
• Beware – lease of up to 3 years at best
rent reasonably obtainable can be granted
orally
• Use a formal document to avoid
uncertainty and disputes
• LSO precedent short term lease
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Leases - terminology
• Lease/landlord/tenant =
tenancy/lessor/lessee
• Leases can be:
– for fixed terms; or
– ‘periodic’ (usually by reference to periods for
which rent is paid)
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1954 Act
why does it matter?
• Automatic renewal rights
• Renewal on same/similar terms
• Possession can only be recovered if
Landlord can establish 1 of 7 grounds –
most commonly redevelopment
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1954 Act - application
• Applies to:
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a tenancy
of premises
occupied by Tenant
for purposes of a business
carried on by Tenant
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“Tenancy”
• Doesn’t apply to licences or tenancies at
will
• There must be a tenancy
• Tenancy can be periodic
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“Premises”
• Not confined to buildings
• Is the land legally capable of being
occupied?
• Examples
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“Occupation”
• Doesn’t have to be continuous
• Applies where only part of premises are
occupied
• “an element of control and user and
involves the notion of physical occupation”
• Test: does the Tenant have day to day
control
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“Business” purposes
• Doesn’t actually have to be business itself
• Ancillary activities can constitute
“business”
• Test varies depending on whether tenant
is an individual or company
Cont’d….
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“Business” purposes
• Individuals
“trade, profession or employment”
• Body of persons
extends to “any activity”
• Profit not necessary
Cont’d….
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“Business” purposes
Examples (Body of Persons):
• Tennis Club
• Sports ground
• Meetings after church, religious
instruction and social events
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Recovering possession
• “Hostile” s.25 Notice
• Court proceedings (expensive and time
consuming)
• Tenant has “ransom” value
• Statutory compensation may be payable
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Contracting out
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Can exclude the 1954 Act statutory protection
University’s standard policy
Lease of 6 months of less - automatic
Statutory notice from landlord – LSO or external
panel solicitors to draft and serve
• Simple or statutory declaration – LSO or external
panel solicitors to draft and serve
Cont’d…
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Contracting Out - Beware
• Lease of 6 months or less – has there
been previous occupation by tenant (or its
predecessor) for more than 12 months?
• Does the lease term refer to any statutory
continuation?
• Variations to lease terms
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Telecomms/data apparatus
agreements
• Beware of Electronic Communications Code – draconian rights
• To enforce removal or relocation of apparatus, landowner must
serve statutory notice
• Operator can serve counter notice
• Landowner must then obtain a court order to enforce
removal/relocation – Code favours operators?
• Landowner may have to pay operators costs of carrying out works
• Operators can seek court order to force landowners to grant
agreements
• Negotiating issues to consider:
• Prohibition of site sharing and additional equipment
• If lease, contract out from 1954 Act
• Operator will require non-interference with apparatus
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Renewable energy apparatus
agreements
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Solar PV panels, wind turbines etc
Feed in tariff income
25-20 year leases
Compensation payments on termination
Free electricity?
Share of any FITs?
Airspace or roof demise?
Structural loading issues?
Restrictions on obstructing light to campus
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Scenario 1
Mr Brown has approached Avalon University to ask if he can use
one of the University’s empty portakabins to make some wooden
bowls that he sells on ebay. The portakabin is of no use to the
University at the moment, but it does sit on land that may wish to
develop in the medium term. Given the amount of rent Mr Brown will
be paying the decision is reached that there is no need to formally
document the arrangement. Mr Brown goes into occupation and
pays his rent monthly. 18 months later Avalon University is
approached with an attractive offer to develop the land by way of a
joint venture, albeit on condition that vacant possession is provided
within 6 months.
Problems?
Cont’d….
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Scenario 1
Points to Note
• Periodic tenancy attracts protection of the
1954 Act – doesn’t have to be written
lease
• Business – 1954 Act definition is broad
• Automatic renewal rights
• Fettering Avalon University’s rights
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Scenario 2
Avalon University has identified some rooms that have been hired
out to a local brass band on the basis of a contractual Licence for an
initial fixed term of 12 months with a monthly licence fee being
payable. The Licence contains “lift and shift provisions”, although in
the 4 years that the brass band have occupied the rooms Avalon
University has never sought to move them to another location. The
University can technically still access the rooms, but again haven’t
done so in practice. The brass band store their trumpets etc in one
of the rooms permanently, but only meet once or twice a week to
rehearse. They can be hired for functions.
Problems?
Cont’d….
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Scenario 2
Points to Note
• Exclusive possession?
• It doesn’t have to be business activity
• “Licence fee” – rent?
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Scenario 3
A sandwich shop is in occupation of one of Avalon University’s
premises on the basis of a contracted out lease. The sandwich shop
wants to diversify and start selling cakes and has been approached
by Mrs Miggins to use one of their back rooms at the premises for
decorating her cakes which can then be sold in the sandwich shop.
Mrs Miggins only uses the premises on Tuesdays and Fridays. The
owners of the sandwich shop suggest it might be easiest if Mrs
Miggins pays the University direct for her occupation. Avalon
University accepts the payments and starts to invoice Mrs Miggins
direct.
Problems?
Cont’d….
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Scenario 3
Points to Note
• Inadvertently creating protected sublease?
• Occupation doesn’t have to be constant
• Cake decorating - “trade” under 1954 Act?
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Scenario 4
Avalon University is building a parade of on campus retail outlets.
Big Juice has agreed to take one of the units, but no formal
agreement for lease is completed. Pending practical completion in 2
years time, Big Juice requires occupation of an existing unit on
campus is applying pressure for occupation ASAP. It says there’s
no time to negotiate and exchange interim documentation, but that
its standard supply Ts and Cs with third party landowners say “The
landowner allows Big Juice sole use of the relevant premises for a
fee of £40,000pa payable quarterly in advance on the usual quarter
days”. 2 years later, the new unit is built and Avalon University
needs to grant a lease of the existing unit to someone else. But Big
Juice refuse to move saying they do not like the new unit, the
existing unit is in a better location from which trading has been good.
Problems?
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Cont’d…
Scenario 4
Points to note
• No formal agreement for lease – very difficult to
force Big Juice to relocate
• Periodic, 1954 Act protected tenancy of existing
unit
• Ransom issue if one of statutory grounds can’t
be made out
• Problems with relying on Big Juice’s Ts and Cs
to document occupation – what premises, extent
of premises, who’s responsible for repairs etc?
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Scenario 5
Starting in November each year, Mr Potato sets up a mobile jacket
potato stand on the corner of one of Avalon University’s concourses,
and occupies the same space daily from Monday to Friday. He only
does this from November to February and so it isn’t considered to be
a problem. He pays the University an annual fee of £700 and in
return he is allowed to hook up his cart to an electricity supply. He
attends the same spot every year.
Problems?
Cont’d….
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Scenario 5
Points to Note
• Doesn’t have to be buildings to constitute
tenancy
• Occupation doesn’t have to be continuous, can
be seasonal if there’s sufficient continuity
• Annual fee may create an annual periodic
tenancy
• Is there exclusive possession?
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Scenario 6
Filmbuster has a contracted out lease of one of Avalon
University’s properties, which expired a year ago.
Negotiations were originally under way for the grant of a
new contracted out lease, but stalled approximately 6
months ago. Filmbuster has remained in occupation
throughout paying their rent monthly.
Problems?
Cont’d….
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Scenario 6
Points to Note
• Occupation coupled with negotiations
generally = Tenancy at Will
• No intention to create legal relations
• Arguably converted into periodic tenancy if
occupation continues
• Highlights the need to actively manage
estate
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Conclusions
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Where occupier will, in reality, exclusively possess/occupy the
premises:
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Avoid
Avoid
Avoid
Avoid
informal occupation
licences
periodic arrangements
long running tenancies at will
Always document occupation
University’s standard instruction - always contract out leases from
1954 Act
Do not allow occupation under an occupier’s standard contractual
terms and conditions
Beware when entering into telecomms/data apparatus agreements
Check identity of occupier and their covenant strength
Ask LSO to draft heads of terms/documents
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Questions?
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