Tenancy at will

Differences between a lease, licence to occupy and tenancy at will

What are the advantages of a tenancy at will?

1. If correctly drafted, the tenant will not benefit from security of tenure. This is advantageous for landlords as it will allow it to retrieve possession of the property with relative ease and will mean that statutory compensation will not be payable to the tenant.

2. It is generally a short document which means it can be prepared and negotiated quickly and at minimum cost.

3. The tenant will not have to pay Stamp Duty Land Tax or, if in Wales, Land Transaction Tax.

4. As either party can terminate the agreement on demand, it means that both the landlord and tenant have a greater degree of flexibility in contrast to the flexibility afforded under a normal lease agreement.

What are the disadvantages of a tenancy at will?

1. If drafted incorrectly, it could end up being a periodic tenancy, in which case, the tenant will benefit from security of tenure.

2. It will not offer the tenant any certainty that it can remain in occupation for a specified period of time. This can be problematic for certain tenants, particularly if it has generated a degree of goodwill as a result of operating from the premises.

3. As the tenant can terminate the agreement at any time, the landlord will not benefit from certainty of income for a specified period.

Terminating a tenancy at will?

As stated above, the key component of a tenancy at will is that it can be terminated by either party on demand.

To bring the tenancy at will to an end, all the landlord needs to do is demand possession of the property, at which point, the tenant must vacate. After the landlord terminates, the tenant will be afforded reasonable time to enter the property to remove its goods.

The tenant may terminate the agreement by vacating the property. A tenant’s notice to terminate the agreement is not enough to bring the tenancy at will to an end, it must actually give up physical possession of the property.

A tenancy at will automatically ends once a longer fixed term tenancy (i.e. a lease) is entered into.

The importance of a correctly drafting a tenancy at will

It is vitally important that a tenancy at will is drafted correctly. If drafted inaccurately, the agreement may be held to be a periodic tenancy. In such a circumstance the tenant will benefit from a statutory right to remain in occupation of the property even after the tenancy has been terminated. This may become problematic for a landlord wanting to regain possession of the property and may result in the landlord having to (i) take the tenant to court; and (ii) pay the tenant statutory compensation to vacate the property.  

It is important to note that the name given to a document is immaterial, what is importance is the document’s substance. Therefore, simply because a document is labelled a tenancy at will does not make it so. Landlords and tenants considering entering into a tenancy at will should always seek legal advice to ensure the document they enter into is as they intend.

Legal costs associated with a tenancy at will

Usually, the legal costs associated with a tenancy at will are less than those payable on the grant of a lease. This is because a tenancy at will is generally much shorter than a lease and is entered into without the tenant carrying out the usual property due diligence.

Who meets the cost of preparing and completing the tenancy is down to negotiation although it is not uncommon that each party meets their own costs.