Member Article

Many charities occupy property, whether as offices, shops or for other charitable purposes from hospices to food banks. But how often do the trustees consider how safe their right of occupation is?

Summary

A set of Freedom of Information requests made recently by the Ethical Property Foundation (article here) found that more than 500 charities renting from local authorities in London had “insecure tenancies”, with more than 150 others at similar risk across nine other councils outside the capital.

The ‘insecure tenancies’ found by the FOI request included tenancies at will and other flexible arrangements, but also many situations where a charity’s more formal right of occupation (such as a lease or licence) had ended, and no new agreement had been proposed or documented.

This is a huge number of charities at risk of immediate eviction by local authorities – without even considering the vast numbers of other properties, owned by private landlords, where the situation may be the same.

How should charities ensure that their property rights are properly protected, and what are the risks of not doing so?

Different species of tenancy

When entering into a new agreement to occupy property, it is important to have certainty about how formal that right of occupation should be.

There will be times when in fact, a more flexible agreement such as a tenancy at will is appropriate and even desirable – but it is key to be sure what your rights are during your period of occupation, and what you need to do in order to remain, or leave, on your terms.

1. Lease 

A lease is a formal right to exclusively occupy property, and is usually documented in writing between landlord and tenant by a contract or deed.

The key ingredients for a lease are a certain length of term and exclusive possession i.e., you are the only person entitled to occupy the property and can keep others out. It will also usually (but not always) require payment of rent.

A lease can be an overly legal way to occupy property if you need flexibility, but the parties can agree to include a contractual break right to allow you to exit early – although this will often require you to give a period of notice to your landlord, and may also require payment of a penalty sum.

A key reason to enter into a formal lease is the potential for security of tenure under the Landlord and Tenant Act 1954. This allows a tenant of business premises (including charities) to stay in occupation after the contractual term of the lease ends, and to request a new tenancy on similar terms.

The protection of the 1954 Act avoids the risk highlighted by the Ethical Property Foundation’s FOI requests, where a right of occupation has ended and the landlord can re-enter and change the locks without notice.

2. Licence

A licence is a more informal arrangement than a lease, granting a personal right to do something in the property (such as using an area within a bigger shop, or occupation as a property guardian) rather than having the exclusive right to occupy the space.

A licence will therefore often include “lift and shift” provisions which allow a landlord to relocate you within the property, for example from room to room within shared office space.

Similar to a lease, a licence might also include a right to end the right of occupation early. You cannot however assign your rights under the licence to someone else – it is a right granted to you only.

3) Tenancy at Will (TAW)

A TAW is the most flexible, and therefore insecure, form of tenancy. It often grants very limited rights to a tenant, in return for a lower or more casual rent.

Either party can end a TAW on immediate notice, although a landlord must also give the tenant a short period of time to remove its possessions and vacate.

Where a charity has gone into occupation pending formal completion of a lease or licence, that occupation might only be as a TAW and therefore subject to certain conditions.

Consequences and risks

If a charity occupies its property under a tenancy at will, or even more informally with no agreed rights in place at all, what are the risks?

The obvious one is eviction without warning. As mentioned above, a TAW can be ended at any time on immediate notice. Similarly, where a lease or licence has expired, a charity will have no right to occupy the property and so a landlord can simply change the locks overnight without notice.

If that happens, charities may also have difficulties in recovering any rents paid in advance.

Finally, charities may have invested significant sums in fitting out their property. All this will be for naught if the occupation isn’t secure, and could in fact be a double blow if the landlord then claims for dilapidations – a cash payment related to the cost of putting the property back into repair, or removing any fit out works.

Next steps

Anna Lowe, Legal Director at Shoosmiths who specialises in advising charities on their property rights, comments:

“Charities need to think carefully about the above and, where they can, seek to obtain secure rights which will give them certainty as to how long they can occupy a property for which, as mentioned in the article, is often a requirement to obtain grant funding.

“With occupancy rates still high for retail premises, the bargaining power may well be on the occupier’s side at present to get such a deal. Most local authorities would rather have premises occupied than vacant.

“Inevitably, it will come down to what the local authority is prepared to agree but with the emphasis on the commercial (having a tenant in occupation) as well as the social value to having charities occupying these premises, now may be the time to push for security rather than simply accept the alternative and contract out of your rights.”

 

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