If a landlord grants a licence allowing its tenant to assign its lease, but a deed of assignment is never completed, what is the status of the proposed assignee if it goes into occupation?
Whether by mistake or design it sometimes happens that a proposed assignee goes into occupation of a property after a licence has been obtained from the landlord, but without a deed of assignment ever being completed. Often this state of affairs does not come to light until the contractual term of the original lease is nearing its end and one of the parties wishes to renew the lease or the landlord wants to have its property back.
If the landlord starts to invoice the new occupier for rent and accepts payment then there is a risk that the original lease will be deemed to have been surrendered by operation of law and a new periodic tenancy will be implied. Such an implied tenancy will enjoy the protection of the Landlord and Tenant Act 1954 (the Act), which could be a nasty surprise for the landlord if the original lease was contracted out.
Even if the landlord continues to invoice the original tenant there could still be a deemed surrender simply by the landlord accepting payment from the new occupier. This scenario is less clear cut, but a landlord should never accept rent from anyone other than its tenant without understanding the basis on which payment is being made. If a landlord becomes aware that someone other than its tenant is in occupation and no formal notice of assignment has been received then immediate steps should be taken to find out what has happened. The occupation could amount to an unlawful parting with possession and the landlord should preserve any right it may have to forfeit the lease and avoid unintentionally granting rights to the occupier.
There can also be problems if the original lease is protected by the Act. The landlord could mistakenly serve an invalid section 25 notice attempting to terminate the tenancy if the notice assumes that the occupier is occupying under the original lease. This can lead to complications and delays, which can be particularly problematic if the landlord wishes to oppose the grant of a new lease in order to redevelop or occupy the property.
On the flip side, a potential assignee should consider the position very carefully before going into occupation in the absence of a formal deed of assignment being completed. They could end up being in a better position than originally bargained for by obtaining protection under the Act, but the landlord could take steps to take the property back if early on it realises that there has been an unlawful parting with possession. Generally there will be an ongoing potential for dispute with the landlord as to the status of the occupation and the occupier will have to consider how its lease can be validly terminated when it wants to vacate the property. In particular, it should be noted that a tenant occupying under a periodic tenancy cannot serve a notice under section 26 of the Act to request the grant of a new lease, which may be an issue if rents are falling or it wants to negotiate new terms.
The key point for landlords is to obtain evidence that an expected assignment has actually taken place before starting to invoice or accept rent from a new occupier. The key point for a potential assignee is to ensure that a deed of assignment has been completed before going into occupation if it wants to be certain of its status. A party already in occupation who is not the original tenant must carefully consider their actual basis of occupation if no evidence of an assignment can be found. The occupier may be in a better position than it originally thought, but it should be prepared for a dispute with the landlord.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.