Foundations of landlord and tenant law – part 9
This series of posts is directed towards increasing understanding of short lets, so in future posts we will largely be concentrating on these. However, before moving on to this, I just want to look at two issues:
- the situation where a lease is for both business and residential use, and
- the difference between long and short residential leases
Business tenancies with residential use
Business tenancies, are, as you would expect, where the purpose of the tenancy is to run a business there. So what then is the situation where the property also has living accommodation, for example, a flat over a shop?
In most cases, it will be a business tenancy, (although if the residential part of the property is sublet, that tenancy (i.e. the sublet) will be residential and governed by the residential laws0.
There have been a couple of Court of Appeal case decisions in the past few years which illustrate the point.
Broadway Investments Hackney Ltd -v- Grant 
This case has a rather confusing history, however, it was basically about whether a mixed business and residential letting was a business one or a residential. The landlord was attempting to evict the tenant under the Landlord and Tenant Act 1954 which is the act which largely regulates business tenancies.
The tenant claimed that he had an assured tenancy and therefore could not be evicted. The Court of Appeal held that as soon as a significant part of the premises was let for business purposes, the tenancy was regulated by the 1954 Act, and could not be an assured tenancy.
Tan and Another -v- Sitkowski 
Here the tenant had leased a property in 1970 which consisted of a ground floor shop and residential flat above. Over the years he had ceased running the shop and the property was now simply residential. He tried to claim the protection of the Rent Act 1977, the act which sets out one of the two main statutory codes governing residential tenancies.
The Court of Appeal held that although the landlords had continued to receive the rent during this period, this was not sufficient to prove, as the tenant alleged, that they had consented to a change of use. So the tenancy was still governed by the 1954 act.
It rather looks from these two cases as if the court is more willing to find that the property has a business use than a residential one. However, I don’t do any work with business tenancies now so others may want to disagree with this. Leave a comment if you have any thoughts.
Its always been all right for people to do a certain amount of business work at home – for example, teachers marking school work and employees working at home on their paperwork.
However, until recently landlords were invariably advised to forbid tenants running their own business from home.
Things changed slightly in October 2015 though when Sections 35 and 36 of the Small Business, Enterprise and Employment Act 2015 came into force. This introduced a new concept of a ‘home business tenancy’.
This allows landlords to permit residential tenants to run a home business without the tenancy falling within the protection of Part 2 of the Landlord and Tenant Act 1954 (so long as tenants are not permitted to run any other kind of business from home).
A home business is a business of a kind that might reasonably be carried out at home – for example, this could include an internet business, a financial consultancy, an advertising copywriting or translation service.
Landlords are now expected to agree to this sort of thing. Although they should still refuse permission for more intrusive businesses such as turning the ground floor into a cafe or doing motor maintenance in the front yard.
Long leases v. Short lets
Long leases are where the length of the term is over seven years. Although usually, they are considerably longer than that – leases can be for hundreds of years although 99 years is a popular term.
The significance of the seven years is that it is when the term is seven years or more that the lease has to be registered at the Land Registry. It then gets its own entry at the Land Registry in the same way as freehold land (you used to get a certificate but the Land Registry stopped this in October 2003).
There are a number of significant differences between long leases and short lets. Let’s take a quick look at them:
- Rent – long leases generally just have a modest ‘ground rent’ whereas the rent for a tenancy is invariably substantially more than that.
- Premiums – this is where you make a payment to ‘buy’ a lease. Premiums are normal with long leases – you ‘buy’ a leasehold flat, often for many thousands of pounds, whereas it is rare for there to be a premium for short lets (they were in fact made illegal in the Rent Act 1977 although are permissible under the Housing Act 1988).
- Creation – Long leases must be created by deed. Under certain circumstances (we look at in more detail later) leases with a term of less than three years do not have to be made under deed, or indeed be in writing at all
- Landlords repairing obligations – all leases with a term of under seven years have the landlords repairing covenants (s11 of the Landlord & Tenant Act 1985) implied into them by statute. For leases with a longer fixed term, responsibility for repairs depends on the terms of the written agreement/lease.
- Service charges – these are charges levied by the freeholder or his manager to cover general maintenance of the building as a whole. They are normal for long leases but practically non-existent for short leases
Terminology – Lease v. Tenancy
Finally, let’s take a look at terminology. Strictly speaking the terms ‘lease’ and ‘tenancy’ are interchangeable and can apply to any type.
However conventionally we tend to use the word ‘lease’ for business leases and long leases, and the word ‘tenancy’ for short lets, ie those under 7 years.
This is what I am going to do from now on.
Next time I am going to have a quick look at how tenancies start and end.
Shops picture by Jon Curnow