It is not uncommon for a landlord to dispute rates liability in respect of an empty property, on the basis that a tenant’s lease (while ostensibly expired) is continuing; i.e. ‘holding over’. What does this mean in the context of rates liability and how may we verify this?

The first point to note is that the concept of ‘holding over’ does require continued occupation at and beyond the end date of the lease. A failure to comply with certain lease terms at the date of expiry (i.e. to yield up the premises in a good state of repair) is primarily a contractual issue between the parties, and does not generate any automatic continuation of the tenancy. Likewise, while it is prudent to look at the specific facts in each case, the retention of keys is not expected to be sufficient as a sole factor. In John Laing Construction Limited v Amber Pass Ltd for example, the tenants retained possession of keys, but were still deemed to have exercised a break clause and ended their lease.

Where the tenant is in occupation, rates liability will of course accrue on that basis; however, landlord and tenant disputes often arise if the tenant subsequently vacates, having remained in occupation for a period beyond the expiry of the original lease term, but without executing a new tenancy.

In cases where the tenant is alleged to have continued ‘ownership’ of the property for business rates purposes, it is firstly useful to ascertain whether their tenancy was protected by the Landlord and Tenant Act 1954. This provides that, if a tenant is in continued occupation of their premises for business purposes at the time their lease expires (and the landlord does not serve notice in advance establishing a proper ground for taking back possession of the property under section 25) the tenant has a right to remain and the tenancy begins to ‘hold over’ (continue) on the same terms thereafter.

There are three main exceptions to this:

1. The tenant may vacate the property upon expiry of the lease term – if the tenant is not in occupation for business purposes their statutory protection is nullified, and the lease is deemed to end;

2. The landlord and tenant may choose to ‘contract out’ of the protections of the 1954 Act before the lease is signed, which is achieved by the service of a prescribed notice upon the tenant, to which the tenant replies by way of a declaration. Where a lease is ‘contracted out’, this will commonly be detailed within the lease itself, i.e. there will be a term included to the effect that:

‘The Landlord and Tenant have agreed that the provisions of sections 24 to 28 (inclusive) of the Landlord and Tenant Act 1954 be excluded in relation to this tenancy and a notice has been served…’

3. The tenant may serve written notice upon the landlord, at least three months before the lease term is due to expire, communicating that the tenant does not desire to continue the tenancy (section 27(1)). If a tenant serves such notice and then remains in occupation beyond expiry of the lease term, he effectively becomes a trespasser.

Where there is any landlord/tenant dispute regarding the above, we would suggest that copies of any notice(s) served between the parties be requested, as these should be retained as a matter of good practice.

The application of the 1954 Act is relevant because, after the ‘holding over’ period has begun in respect of a protected tenancy, the tenant should serve three months’ notice to terminate their leasehold interest (under section 27(2)). Rates liability can therefore continue beyond the date of vacation:

‘A tenancy granted for a term of years certain which is continuing by virtue of…this Act shall not come to an end by reason only of the tenant ceasing to occupy the property comprised in the tenancy but may be brought to an end on any day by not less than three months’ notice in writing given by the tenant to the immediate landlord…’.

In cases where the protection of the 1954 Act does not apply, it is possible to create an implied periodic tenancy by conduct (see the case of Prudential Assurance Co. Ltd and London Residuary Body). This would however require that the tenant (being in possession) pay rent, and the term of the resulting tenancy would then be expected to be defined by the frequency of rent payments. Where any such scenario is alleged, we would suggest that evidence be requested regarding the receipt and acceptance of rent.

Please note that the Landlord and Tenant 1954 protections only apply to business tenancy scenarios, and in the context of council tax we would refer you to our article on the case of Leeds City Council v Stephen Broadley.

Michelle Summers.