Expiry of leases – Avoiding uncertainty
It is not in the interests of either a landlord or a tenant to have uncertainty around the tenant’s continued occupation of the leased premises after the prescribed expiry date in a lease. And yet, it is surprising how often a tenant will continue to occupy on a holding over basis on a monthly tenancy, which opens both parties up to unsatisfactory levels of risk – the tenant because it may have to relocate on short notice (causing cost and business interruption problems), and the landlord because an empty premises with no replacement tenant lined up can cause significant cash-flow problems. Apart from the “high risk” commercial reasons, there are some legal issues that arise that may not give parties the assistance they might have thought they had.
Varying an Expired Lease: Is this possible?
The terms of a lease are usually clear when it comes to how and when parties can exercise a renewal of lease. Lease renewals have their own issues – see our previous alert on this topic.
However, sometimes a lease expiry date arrives and there is no contract in place for continued occupancy rights, but the parties wish to vary the lease to extend the term. This can be for a number of reasons, e.g. the parties wishing to contract on the same terms; the parties requiring additional tenure; or the ease of not having to negotiate a new lease on new terms which can be costly and timely. However, there can be misconceptions about whether parties can vary a lease after it has expired. The answer is not straightforward and we canvass some of the common issues below.
It is commonly accepted that if the parties agree to vary the lease prior to the final expiry date, such a variation can be valid and binding, notwithstanding the fact that it may not yet have been documented –i.e. if the parties reach agreement prior to expiry but have not documented that agreement by the expiry date it is still generally accepted that, once documented, this is a valid variation/extension as it records the parties’ agreement reached whilst the lease was still ‘live’.
In contrast, if the lease expiry date has passed before the parties decide they wish to vary the expired lease, the starting position at common law is that the lease cannot be resurrected.
Most leases usually contain holding over provisions allowing an occupier to remain in occupation of the premises following the final expiry date until such time as either the landlord or occupier give notice in writing to end the holding over period. Such an arrangement is usually considered a temporary arrangement allowing the terms of the lease to continue for so long as the occupier remains in occupation. However, holding over is not usually considered an extension to the final expiry date of the lease, so any intention to vary the lease during a holding over period would not be considered valid.
The ability of parties to vary leases on or around their final expiry dates is not straight forward. In the majority of cases, whether an attempt to make such a variation is binding will depend on the circumstances of each arrangement, and whether agreement was reached prior to the final expiry date. We therefore strongly suggest that that the parties enter into discussions and engage with their legal representatives well before any lease end date, to ensure they reach agreement and properly document any new arrangements prior to the expiry of that lease.