Tenants have significant rights compared with occupiers of premises whose occupation is by virtue of a licence, so it is sometimes important to be sure of the basis of occupation and to be aware of the fact that tenants’ rights can be created in some circumstances when a formal lease has not been signed.

This is because the Law of Property Act 1954 (Section 54) provides that a lease can come into being without the need for the preparation of a written lease. There are certain conditions which apply in such circumstances, which are, in simplified terms, that:

• the lease cannot exceed three years;
• the term starts when the lease is put into effect (i.e. not later); and
• the rent is the market rent for the premises.

Recently, an appeal was heard from tenants who were occupying premises paying a rent of approximately one third of the market rate under a one-page agreement which was not properly executed as a lease, but which they claimed was sufficient to constitute a lease under Section 54. They claimed that as a result they had security of tenure when a new purchaser of the freehold of the unit they let sought to evict them from the premises.

The case went to the Court of Appeal, which concluded that the tenants did not have a lease under Section 54 as the requirement that the rent payable was equivalent to a market rent was not met. Accordingly, the arrangement could be terminated on demand.

“Had the rent payable been close to the market rent, the decision may well have been different,” says San Chima. “A landlord who had driven a harder bargain to start with might have found himself with a property that had a sitting tenant and was therefore more difficult to sell as a result. It makes sense in cases in which premises are occupied on an informal basis to put the arrangements in proper form so that questions such as this can be dealt with speedily.”