Short-term property occupation – commercial realities and avoiding pitfalls

Sponsored feature | Michael Russell, senior legal counsel, HCR Hewitsons

Commercial property lawyers are often asked at short notice - ie with someone about to go in - if there’s risk in allowing occupation of premises on a short term-basis. The answer is usually yes, and that the ‘arrangement’ and the parties’ obligations should be properly documented.

The parties’ intentions, proposed duration - whether it be it finite or ongoing - and the purpose of occupation will determine the proper documentation required, often a licence or tenancy at will.

Commercial concerns

For the property owner, this could be that:

• The period of occupation is clear
• They can terminate the arrangement without the occupant acquiring ongoing rights to remain in possession
• The property is safely and lawfully used for a specified purpose
• Any damage to the property or losses suffered by the owner arising from the occupation are made good
• The property’s insurers and lenders are notified and agree in advance to the arrangement. Both insurance policies and mortgages have clauses within the small print which an owner might inadvertently breach by allowing a third party into occupation. Invalidating an insurance policy could be costly.

For the occupant, concerns could include:

• They inadvertently end up in an agreement where obligations to pay rent might continue in force long after they wish to leave
• That the obligations being imposed upon them are not disproportionate to the intended length of stay.

Tenancies at will

These documents are suitable for use as simple and short-term rental agreements, perhaps while the parties negotiate a lease. They can be oral but should be written. There is no specified term or expiry date and either party can terminate at any time. Following termination, the tenant must leave. Their simplicity means they can be put in place quickly and they do not fall within the stamp duty land transaction tax regime.

Licences

Licences grant consent to occupy or use property for a specified purpose, eg to use a room or office, car parking space or for works, such as scaffolding. The consent is personal and non-assignable. Care is needed to ensure the licensee does not have exclusive possession, which could result in the occupancy being classified as a tenancy, possibly with security of tenure’ rights ensuing making it harder for the owner to regain possession.

Indemnity

An indemnity is needed in each document to protect the owner from claims, losses or damage suffered and resulting from the use or occupation. Any indemnity is only of practical use if the financial strength of the indemnifier is sufficient to make good the loss. Financial checks are needed.

Drafting

Sound advice and careful drafting are essential to ensure the parties’ original commercial intentions are correctly reflected in an appropriate form of document.

For more information, contact Michael Russell on 01223 532750 or 07584 015569 or email mrussell@hcrlaw.com.

Visit hcrlaw.com.

Read more

Common pitfalls for residential landlords

More transparency on the way for home-buyers