We often come across properties where tenants are in occupation without any form of written agreement in place. In this article we will be highlighting some of the issues that can arise from not having a written lease agreement.

Repairs

With no written agreement there is no clear indication of who is responsible for repairing the property. Whilst some of the time Landlord and Tenant can reach an agreement as to whom is responsible for the costs of repairs, we are often asked to advise on this issue, especially when relations between Landlord and Tenant have soured.
It is common for Landlord and Tenant to disagree on this matter as each seeks to protect their position, but had there been a written lease agreement in place this would clearly state where the obligation to repair lies. Whether this be a Full Repairing and Insuring (FRI) or Internal Repairing and Insuring only (IRI) obligation, one party would be disappointed but would most likely have been aware of their responsibilities with regards to repair prior to this situation ever arising.

Security of Tenure 

We often speak to property owners looking to redevelop a site where there is no written lease agreement in place. With no written agreement in place, if the tenant has been in occupation for a period longer than six months, they will benefit from a periodic tenancy and have Security of Tenure meaning vacant possession can only be obtained on limited grounds detailed in the Landlord and Tenant Act 1954.

The result of subsequently obtaining vacant possession can at worst be impossible and will always be costly. Even if the Landlord can satisfy the ground upon within vacant possession can be obtained, in certain circumstances compensation must be paid to the Tenant.

Use of Area

It is common for us to find a tenant is using an area that is outside what the Landlord originally demised to them. The absence of a written lease agreement, which would make reference to a plan contained within the lease detailing the demised area can present the problem that there is no defined area.

This issue can damage the Landlord - Tenant relationship as it may be difficult for the Landlord to reclaim the additional areas of land with no proof of the original demised area to fall back on as an argument. If they cannot claim the land back and they wish to rentalise the additional area they may find the rent increases to a level that makes the property unviable for the Tenant. The alternative to this is that the Landlord chooses not to rentalise the additional area which will weaken the strength of the original deal that was agreed as they are in fact leasing more space but receiving no benefit in terms of rent.

Rights

A written lease will dictate the rights granted to a tenant over the Landlords property. For example; rights to park vehicles, rights of access etc. will all be explicitly detailed. Both the Landlord and Tenant are potentially at risk if there is no written lease agreement in place as there will be no detailed agreement of these rights that the Tenant may or may not utilise. The Landlord or Tenant could lose control over the right they thought they benefited from which could have a negative impact on their position.

Use

In a written lease agreement, the User clause will detail under which Use Classes the Tenant can operate within the property. These are usually restrictive and protect the Landlord from the Tenant operating outside their agreement use, for example; a tenant in a retail unit (A1 Use Class) would not be able to suddenly operate from the property as a Restaurant (A3 Use Class) without first applying to the local Council's Planning department for a change of use and seeking the Landlord's permission to do so. Another example could be a Tenant using an industrial unit for light industrial uses (B1 Use Class) would be unable to change their operation to a more 'general' industrial use (B2 Use Class) without obtaining permission from the local Council and the Landlord. Even if the local Council approve the change of use, the Landlord still has the right to prohibit the unit being utilised for any use outside that which is stated within the User clause of the lease.

Without a written lease agreement, the Landlord has limited control over enforcing the use class within which they want the Tenant to operate. This could lead to problems which include invalidation of the property insurance and disturbance to neighbouring tenants.

Conclusion

The above is only a brief overview of some of the common issues that can arise from not having a written lease agreement in place. It is by no means an exhaustive list and the potential pitfalls that can be created from not agreeing to a written lease agreement, not to mention the extra hassle it can cause for the Landlord and Tenant, mean that it's always advisable to have one in place.

For further information on this or any other Commercial Property matters, or if you're a Landlord or Tenant that does not have a written lease agreement in place, please contact Simon Patrick email here or Rob Haigh email here.