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Landlords Beware! – The Risks of Allowing a Tenant Occupation of your Commercial Premises Prior to Legal Completion

There are various risks involved when a Landlord allows a Tenant occupation of his commercial premises before legal completion has taken place.

Of course, we understand from a business point of view that there are a number of reasons why a Landlord would allow a Tenant occupation before completion and why a Tenant would want to take occupation before completion.  Namely, the Landlord would be able to start collecting rent sooner and the Tenant would be able to start trading sooner and all whilst the Solicitors are sorting out all of the paperwork.

Surely it’s a no brainer right?  Wrong!
Part II of the Landlord and Tenant Act 1954 (“the Act”) sets out the rules relating to security of tenure for business, professional and other tenants.  Security of tenure means that the Tenant is entitled to continue occupying the property after the lease has expired and the Landlord has to grant a new Lease on the same or similar terms.
If the Tenant has been allowed to occupy the property with exclusive possession for business purposes the Tenant will be granted protection under the Act which in turn means that the Landlord won’t be able to get his property back at the end of the term!
There are however two options that which will eliminate the risk of the Tenant obtaining security of tenure whilst still allowing for early occupation which are set out below.
Licence to Occupy
A licence to occupy could be granted prior to completion however, the only way such a l licence will not be caught by the Act is by not allowing the Licensee to have exclusive possession of the property.
An example would be to include a clause in the licence whereby the Landlord or his agent has the right to enter the property for half an hour a day (and actually does so) for whatever reason thereby the Tenant does not have exclusive possession of the property.
Tenancy at Will
A tenancy at will could be granted prior to completion and this in some ways is the more favourable option of the two as a tenancy at will can be instantly ended by either party.
It would however be advisable to include a clause in the tenancy at will restricting alterations or decoration to the property as if for whatever reason completion did not occur, the Landlord would not want an altered property and the Tenant would not want to have spent money and time altering the property.
The most important point to take home from the above information is that an early occupation agreement should be entered into if the Landlord is prepared to allow a Tenant occupation of his commercial premises before legal completion has taken place and legal advice should always be sought when doing so.
For further advice contact any member of our Legal 500 Commercial Property Team.