When a fixed term lease expires and the tenant continues in occupation, subject to other agreements/arrangements between the parties, the tenant is said to “hold over” under the terms of its expired lease.  Purchasers may have assumed that they could acquire such interest without difficulty. However, a recent High Court ruling gives purchasers reason to be cautious on acquiring a “holding over” interest in a lease where there is an application pending for a new tenancy. It confirms that a tenant “holding over” in such circumstances:

• Does not hold any estate or interest capable of being transferred or assigned to another party; and
• Is the only party who can enforce renewal rights.

This has implications for both purchasers and vendors of property. Purchasers should not acquire a “holding over” interest in a lease where there is an application pending for a new tenancy. They should require that vendors regularise the position and enforce their renewal rights prior to disposing of their interest in such property. Vendors will need to obtain a new lease from the landlord, the terms of which are fixed and the interest in which can be assigned. Where this is not possible, recourse to the courts may prove necessary.

Contributed by Tara Rush.

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