In this article, our commercial property solicitors will look at the nature of a tenancy at will, and when it might be suitable to use one (or when it might arise unintentionally).
Contents:
- What is a tenancy at will?
- What are the differences between a tenancy at will and a lease?
- Is a tenancy at will legally binding?
- Do you need to use a written agreement to enter into a tenancy at will?
- What are the advantages of using a tenancy at will?
- What are the disadvantages and risks of using a tenancy at will?
- Can a landlord increase rent on a tenancy at will?
- Does a tenancy at will normally require a personal guarantee?
- How much notice do I need to terminate a tenancy at will?
- Summary
What is a tenancy at will?
A tenancy at will is an arrangement between the landlord and the occupier (tenant), that can be terminated by either party at any time. For as long as the tenancy at will subsists, the tenant is entitled to exclusive possession of the relevant property; but the tenant does not have the security that a lease for a fixed term would offer. In addition, a true tenancy at will does not give the tenant any security of tenure under the Landlord and Tenant Act 1954.
What are the differences between a tenancy at will and a lease?
A true tenancy at will does not give the occupier any security of tenure (a right to renew the tenancy), and it can be terminated at any time. A lease, on the other hand, may have security of tenure (depending on whether it has been excluded from the relevant statutory provisions), and will in any event be for a minimum term (for example, 5 years) with a fixed expiry date. If the parties want to allow the occupier more security than a very short-term arrangement, granting a lease might be a better option. A lease can be granted even for a very short term (e.g., a few months), and can often be drafted in a simpler form that a longer-term lease (which will often run to 40 plus pages). The benefit of a lease from the occupier’s perspective is that it will then have certainty on how long it can occupy for. From a landlord’s perspective, it will know how much rent they will be getting from the property and how long it will be until the property is vacant again, which will help with forward planning, such as financial planning and marketing the property for future let. However, the grant of a lease may attract liability to pay Stamp Duty Land Tax and registration requirements at the Land Registry.
Is a tenancy at will legally binding?
Yes, a tenancy at will is legally binding. A tenancy at will cannot be assigned to a third party, as it is personal to the original landlord and original tenant.
Do you need to use a written agreement to enter into a tenancy at will?
No, a tenancy at will can arise by implication; i.e., because of the actions of the parties. For instance, where a lease expires and the landlord acknowledges that fact to the tenant but allows the occupier to remain in situ whilst they negotiate new lease terms, the tenant is likely in occupation under a tenancy at will.
Where a tenancy at will arises by implication rather than by written agreement, the terms of that tenancy at will shall depend on the particular circumstances surrounding the occupation. For example, where the occupier is continuing to occupy after their lease has expired and they continue to use the property in the same way as they did previously, it is likely that the implied tenancy at will arising between the parties will be deemed to be on the same terms as the expired lease (except that either party can terminate the arrangement at any time).
For certainty and comfort, where both parties want to allow the occupier into exclusive possession of a property on a very short-term basis, it will be better for both parties to formally agree a tenancy at will in a written document. Tenancies at will can be very quick and easy to draft – often just a page or two in length. Where occupation is undocumented, the status of the occupier will be uncertain, which can lead to disputes and subsequently expense for both parties.
What are the advantages of using a tenancy at will?
A tenancy at will can be drafted very quickly and can be put in place without delay. Agreeing a tenancy at will can cement the status of an occupier, giving comfort to both parties. This might be particularly helpful for a landlord, who may wish to make it clear to an occupier that the occupier does not have any long-term interest in the property and that their occupation can be terminated at any time.
A tenancy at will does not confer any security of tenure, which is beneficial for the landlord. It also does not generally attract any liability to pay Stamp Duty Land Tax or Land Transaction Tax, which is beneficial for the tenant.
What are the disadvantages and risks of using a tenancy at will?
A tenancy at will may not be the ideal solution for an occupier, as it gives no security for a longer period of occupation. From a landlord’s point of view, a tenancy at will does not provide any secure period of rental income on which they can rely, as the occupier can terminate the tenancy at any time.
Allowing a tenancy at will to continue for longer than a short period of time can result in complications, especially where the tenancy at will is not documented and has arisen by implication (i.e., the actions of the parties). In this scenario, disputes can arise as to the true intentions of the parties and whether the occupation was intended to be a tenancy at will, or some other form of occupation (such as a lease, or a licence to occupy, or a periodic tenancy).
If there are no lease negotiations ongoing, and the occupation is not properly documented as a tenancy at will, an occupier may be able to claim that they have a periodic tenancy, which does have security of tenure under the Landlord and Tenant Act 1954. If this argument were to be successful, the landlord would find it much more difficult to terminate the arrangement with the occupier. It is therefore sensible for a landlord to ensure that when a tenant’s lease expires, the landlord is pro-active in either contacting the occupier to commence negotiations for a new lease (and putting a written tenancy at will in place for the period whilst negotiations are ongoing), or in seeking to recover possession of the property.
Can a landlord increase rent on a tenancy at will?
A tenancy at will does not usually contain a mechanism for a review of the rent. However, a landlord can terminate the existing tenancy at will and grant a new one at a higher rent, if it wishes.
Does a tenancy at will normally require a personal guarantee?
It is unlikely to do so, as a tenancy at will is a short term, temporary arrangement. Because a tenancy at will can be terminated at any time, if the tenant does not pay the rent, the landlord can simply terminate the tenancy.
How much notice do I need to terminate a tenancy at will?
The nature of a tenancy at will is that it can be terminated at any time by either party. Termination can occur either by one party giving express written notice to the other (which is preferable to avoid any uncertainty) or the intention to terminate can be implied. For example, the landlord may imply termination by demanding the keys back from the tenant, or the tenant may simply vacate the property and hand the keys back.
There is no requirement for a minimum notice period to be given (though often the parties will agree in a written tenancy at will that they will give a certain period of notice).
Where a landlord terminates a tenancy at will, either expressly by notice or by its demand for keys or possession, the tenant has a reasonable time to enter the property after termination to remove its possessions.
A tenancy at will will terminate automatically if the parties enter into a new tenancy or lease of the same property.
Summary
A tenancy at will is a useful tool to document an occupier’s temporary and short-term occupation of a property. They are most often used where a landlord is happy to let an occupier remain in situ once their lease has expired, and whilst negotiations for a new lease are ongoing. However, landlords in particular should be wary of failing to document a tenancy at will or drafting it incorrectly. Labelling an agreement a tenancy at will when it is, in fact, a lease or a periodic tenancy can lead to complications and disputes over the status of the occupier. It is always advisable to seek the advice of a commercial property lawyer who can review the circumstances of the occupation and the intentions of the parties and advise on the most appropriate arrangement, so that both parties are clear on their status.
