Deemed Commercial Tenancy Inferred from Possession and Payment of Rent

Even in the absence of a formal lease, the existence of a tenancy can in some cases be inferred from an occupier's exclusive possession of premises and the payment of rent. The Upper Tribunal (UT) did just that in opening the way for a company to seek compensation following the compulsory purchase of its nightclub premises.

The company operated the nightclub, which was located in a railway arch, for about two years prior to the compulsory acquisition of the premises to make way for a rail construction project. The question of whether the company had an interest in the premises for the loss of which it should be compensated by Network Rail Infrastructure Ltd was considered by the UT as a preliminary issue.

The company's primary case was that, at a meeting with representatives of Network Rail and the then tenant of the premises, a final and binding agreement was reached that it would be granted a 20-year lease of the premises at a rent of up to £50,000 a year. In reliance on that agreement, it said it had invested between £1.2 and £1.5 million on improving the premises and fitting them out as a nightclub.

The UT, however, noted that there was no written record of what was agreed at the meeting. Although a tenancy was discussed in principle, the company received no formal or binding assurance that it would be granted a 20-year lease. It proceeded with the fitting out works in part because it was willing to take some risk in order to get the nightclub open as soon as possible.

However, the company succeeded in establishing its alternative case that it had a periodic tenancy of the premises, from year to year, with the benefit of security of tenure under the Landlord and Tenant Act 1954. To that extent, it had an interest in the premises for the loss of which it was entitled to be compensated.

Although there was no formal document conferring such a tenancy, the UT deemed its existence from the company's exclusive possession of the premises, the extent of its expenditure on them and its payment, on a quarterly basis, of £18,000 a year in rent. Network Rail's contention that the company was no more than a tenant at will of the premises was rejected.