Tenancies at will are an often-overlooked option for tenants who need to occupy a commercial property but do not necessarily wish to commit to a long-term lease. They are a type of rental agreement where a landlord allows a tenant to occupy a property for an indefinite period, without a specified end date or a renewal period. However, they are best suited to short term use and, unlike a traditional lease agreement, they are determinable at the will of either the landlord or the tenant.

The pros

A tenancy at will is a personal arrangement between a landlord and tenant. It can be expressed in writing or implied by conduct, and it can offer both parties a high degree of flexibility in cases where the duration of property occupancy is uncertain, most typically when a new lease is being negotiated.

For small commercial tenants, this can be an attractive option if they are just starting out and do not have the financial resources to commit to a lease agreement for an extended period. For landlords, they can retain tenant interest in the property whilst generating rental income.

Further, a tenancy at will can be prepared and negotiated with little delay and they are generally exempt from Stamp Duty Land Tax. They offer flexibility in terms of rental periods and, as either party can terminate the agreement at any time, they provide a simple and straightforward way to end the rental agreement. Tenants can occupy the property for as little or as long as they require, while landlords can avoid being tied down to a long-term lease and have the assurance that they will regain possession of the property if negotiations for a new lease fall through.

The cons

For landlords, one of the biggest drawbacks of a tenancy at will is the risk of conversion. This occurs when an implied tenancy at will, i.e., one that has not been formally documented in writing, converts into a long-term arrangement. This is particularly risky when parties engage in negotiations for a new lease but fail to reach an agreement. If a landlord does not take proactive measures to negotiate and safeguard its interests during negotiations, then the tenant may be able to argue that an implied periodic tenancy has arisen.

A periodic tenancy gives the tenant a rolling tenancy that benefits from security of tenure under the 1954 Act. This grants a tenant a statutory right to stay in the property. Once a tenancy under the 1954 Act is established, landlords can no longer terminate the lease at their discretion, and it becomes increasingly difficult to regain possession of the property. The longer the implied tenancy persists, the greater the likelihood of it being deemed a periodic tenancy.

For tenants, a tenancy at will provides very little security. The flexibility that makes them attractive is also one of their biggest flaws. They tend to favour landlords, as the absence of a fixed term means that a landlord can demand possession of the property at its discretion, leaving a tenant with little notice and limited options for finding alternative occupation.

Tenancies at will operate outside of the 1954 Act (if drafted correctly), which means tenants are without proprietary rights and lack security of tenure. Tenants will have basic rights of use and landlords will likely be able to enter the property without notice. However, what is advantageous for landlords may also present challenges, as landlords may find it difficult to make future plans, with no guarantee that its tenant will continue to occupy the property. This could be problematic if the Landlord requires a reliable source of income.

When should the parties consider a tenancy at will?

Tenancies at will can be a useful and practical bridging mechanism to protect the interests of both parties while negotiations for a new lease are on-going. This is particularly relevant when a tenant’s original lease is about to expire and the tenant will remain in occupation in the intervening period before the new lease completes. They offer a significant degree of flexibility, but at the cost of financial insecurity and limited tenants’ rights.

The risk of conversion means that landlords will need to be proactive in negotiations and ensure that, until the new lease has been agreed and completed, arrangements are clearly expressed to be a tenancy at will. A landlord should instruct its solicitor to issue a written tenancy at will to the tenant so that the intentions of both parties are well documented and agreed to swiftly, to mitigate the risks associated with relying on an implied oral arrangement.

For any further advice on this topic or another commercial property matter, please get in touch with Clare Strachan or another member of our Commercial Property team.