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 • 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: • 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: • 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

• 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 agreements – Code favours operators?

• Landowner may have to pay operators costs of carrying out works • Operators can seek court order to force landowners to grant • 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

• 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?

Cont’d…

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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

• • • • • • •

Where occupier will, in reality, exclusively possess/occupy the premises:

•

Avoid informal occupation

•

Avoid licences

• •

Avoid periodic arrangements Avoid 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 www.michelmores.com

Questions?

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