The nuances of undocumented business occupation

The June 2023 Court of Appeal judgement Avondale Park Limited v Miss Delaney’s Nursery Schools Limited held that a contracted-out sublease of a nursery school had automatically terminated (by virtue of a clause in that sublease) and that the subsequent continued occupation by the subtenant resulted in an implied periodic tenancy which was protected under the Landlord and Tenant Act 1954.

The consequential finding of relief from forfeiture for the subtenant prevented the attempted termination of the sublease by the landlord. That was a big surprise for the landlord and no doubt caused them a considerable subsequent headache not least because they were also head tenant under a headlease (the terminated sublease had originally been drafted to end just prior to the expiry of the headlease) and protection of the sublease under the 1954 Act meant that a further 6 months’ s25 notice to attempt termination of the sublease would of course be required.

Another issue for the landlord to grapple with was that its headlease actually prohibited anything other than residential use – yet the actual use that had been permitted by the landlord under the sublease was as a children’s nursery…

Avondale Park is an interesting case, especially when compared to the circumstances of the 2022 High Court case of Valley View Health Centre v NHS Property Services in which a business tenant had occupied on an undocumented basis since 2007 because in Valley View the tenant was held to be merely occupying as a tenant at will. This meant that occupation could be more easily brought to an end.

The main difference between Avondale Park and Valley View was that there had been negotiations in 2007 and 2011 for the grant of a formal lease and those negotiations were identified by the court to be ‘continuing’ negotiations. The judge in Valley View said that the key in deciding the status of occupation is “…whether the parties intended that the occupation of the relevant premises by the relevant party should only continue at the will of the parties…”. Therefore because there was evidence that occupation was subject to terms to be agreed the tenant in Valley View was in a much less preferential position.

However as we have seen from the recent Avondale Park case, where a party is allowed into possession of land and pays rent on a regular basis, it may be appropriate to imply a periodic tenancy – which would then be subject to the 1954 Act.

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