News & Insights

Granting a commercial tenant early access – a good or bad idea?

Rebecca Staunton, a solicitor in our Real Estate team, considers whether landlords should grant early access to a tenant before they complete a new lease. There are numerous dangers that come with the practical benefits of allowing early access, but there are ways that we can help to minimise that risk.

Granting early access to a commercial tenant, who is due to sign a new lease in the very near future can be tempting, especially where the tenant has a trading deadline (like the Christmas sales for a retailer), or a large delivery of stock coming and nowhere to put it. Also, the sooner they are in the sooner they will be paying rent and other payments due under the lease (such as business rates). If the landlord and tenant enjoy a good relationship, this could seem like a good way to keep the tenant happy – especially if they are desperate to begin trading and need to carry out decorations or a minor fit out. The intention after all is to secure the tenant and stop them looking at other options.

That said, a landlord should be wary when allowing a tenant early access because the tenant may end up benefitting from security of tenure under the Landlord and Tenant Act 1954, which means that they obtain an automatic right to stay in occupation (unless the landlord can prove certain grounds to regain possession of the property and pay compensation). Moreover, if a fit out is being carried out by the tenant, the landlord will have no control over how those works are carried out if there is no documented deal. The landlord will also have difficulty in forcing the tenant to strip out the alterations if the deal falls through or at the tend of the lease term, or to have them rectify bad workmanship.   We don’t recommend that a tenant is ever allowed in informally to do major works, which make the property worse before it gets better.  As a result of its good intentions, a landlord may quickly find that it has lost control of its asset.

A landlord can, however, grant early access safely by making sure that the proper legal documentation is in place. There are essentially three ways of doing this:

  1. Agreement for Lease – this document would attach the agreed form of lease and a licence to alter and state the licence terms upon which the tenant could take up early occupation. This option is most appropriate where early access is required to let either party carry out works to the property before the tenant can occupy it, or if either party is not quite ready to complete the lease (e.g. the landlord needs to clear out an existing tenant (or to move itself out), or to prepare the space, or certain services to serve the premises are not fitted yet).  It needs the full deal documentation to be agreed and annexed, and so is very certain and secure, but is not the speediest option and occupation under it can trigger the obligation to pay payment of Stamp Duty Land Tax;
  2. Tenancy at Will – such a tenancy can be terminated immediately by either party, by notice to the other.  They don’t in law need to be written, but it is best if they are, so that everyone knows what the terms are.  A tenancy at will does not attract security of tenure.  We would discuss with you what terms are appropriate to include. This option may not be attractive to the parties, due to the fragility of its “at will” nature – essentially an either-party break option exercisable at any time, but on the positive side it is short in words, quick and cannot confer security of tenure; or
  3. Licence to Occupy – this would allow the occupant to go into the property as a licensee on agreed terms, for a set (or flexible) period of time and can contain termination provisions. Similar to a Tenancy at Will or an Agreement for Lease, having such a document in place would avoid the occupier obtaining a protected tenancy under the Landlord and Tenant Act 1954. However, there are risks in granting a licence for a fixed term to a commercial tenant, who arguably enjoys exclusive use and possession of the property, which we can advise you on. The courts in certain circumstances have found find that the occupier has a lease and not a licence, and that it can be a lease with security of tenure under the Landlord and Tenant Act 1954 – please see our partner Dean Bickford’s article “Licence to Occupy… or is it?”

A landlord should always seek legal advice before permitting early access to their property. Deciding which document is most appropriate will depend on the circumstances at the time and we can advise you on what suits the parties’ needs best. What is certain, however, is that a landlord should not permit early access without formally agreeing and recording in writing the terms upon which that early occupation happens.