Commercial property blog: Don't ignore the documentation in a property transaction, even when you are in a hurry1st February 2014

Sometimes the letting process can seem frustratingly slow and clients may wonder "are all of these documents really necessary?"

Well, the short answer (in the landlord and tenant world at least) is "yes"! There are a number of hazards, which could befall parties who choose to eschew formal legal documentation to occupy premises.

There may be a number of reasons, which on the face of it make proceeding without formal documentation appear attractive; a tenant might have urgent business reasons to move quickly, such as a substantial new order requiring sudden expansion, existing premises damaged by fire/flood or the Christmas trading season being imminent. They might have contractors lined up to start works or have found ideal premises that they do not want to lose. On the other side of the fence, a landlord may be keen to get long-vacant premises occupied and see allowing occupation as committing a tenant to the premises.

Here are a few of the reasons why you should be sticking with the lawyers in these situations (albeit whipping them into a frenzy of activity), rather than ditching legal documents altogether:

Lack of certainty

The parties might think the terms of deal are agreed, but the devil is in the detail of the drafting and he may come back to haunt you once you are safely ensconced in the premises, when any bargaining chip will have vanished along with the momentum of the deal.
Until a lease is completed neither party knows exactly on what basis the tenant is occupying the premises. The tenant could leave at any point, leaving the landlord with empty (possibly damaged) premises to repair and remarket, added to which any legal claim against the tenant for damages may be difficult to substantiate without full and clear documentation. Equally, if the landlord finds a better deal elsewhere, a tenant could potentially be booted out without notice when it has already invested time and money in fitting out or even where it has begun trading.

Change in landlord may result in termination of the tenant's right to occupy – an ad hoc, informal right to occupy is likely to be personal to the original parties and so may be unenforceable if the landlord dies or sells their interest in the property to a third party.

You may not have agreed what you thought you had agreed - the law likes to get involved, even where interference is unwelcome, and unanticipated terms may be implied into an informal occupation. The main risk for landlords is that they will find themselves with a tenant who has gained security of tenure under the Landlord and Tenant Act 1954 with all the resultant costs and time delays entailed in gaining re-possession of 1954 Act protected premises. Tenants may unwittingly find themselves tied into a tenancy with a longer than anticipated notice period / termination date and consequently higher costs.

In my next blog, I'll be looking at "when a lease is not a lease" and the common misconception that simply calling something a licence means that the landlord can get the premises back whenever he chooses. In the meantime, I will leave you with this advice…Know what you are getting yourself into…

When a tenant goes into premises without documentation, the legal position will probably change as the occupation continues and evolves. Ultimately this is likely to create uncertainty and increase costs.

If early access to premises is essential then you should:

1. Document a formal tenancy at will (which by its nature, can be terminated immediately at any time and by either party) pending completion of the lease and specify a deadline for the lease negotiations to be completed to keep the momentum going
2. Or use the pressure to agree the lease terms quickly. Lawyers can act with urgency, particularly when both parties instruct them to do so. 

About the author

Katherine Ekers qualified as a solicitor in 2011 and is a rising commercial property star at Forsters LLP.