Rights of renewal for commercial tenants in Jersey

Implied lease renewals in Jersey

Background

Unlike England & Wales, a tenant of commercial premises in Jersey does not automatically benefit from a right to renew their lease at the end of the term. However, a tenant who stays in the premises after their lease has expired (where the landlord continues to accept rent) may become a "tacit tenant" because their lease has "tacitly renewed".

A tacit renewal is implied from the actions of the parties to the lease. An implied intention does not override an express intention. However, where a landlord permits a tenant to remain in premises after the end of the term and accepts rent, there is a strong case that the landlord is happy to tacitly renew the expired lease.

A tacit renewal means that the old lease is deemed to have been renewed on broadly the same terms as the old lease. There are a couple of exceptions:

• Term: the term of the tacit lease will be a periodic tenancy rather than a fixed term (unlike the expired lease); and
• Guarantees: any guarantees given under the expired lease will not survive the renewal. 

Licensees (as opposed to tenants) who stay in premises following the termination of the licence are not entitled to a tacit renewal.

Possible implications

The implications for landlords and tenants are very different in the event that a lease is tacitly renewed.

A landlord is likely to want to formally regularise the tenant's occupation of the demised premises in order that they can manage their income streams and maintain an institutionally acceptable asset.  Other possible landlord concerns include:

• allowing a tacit renewal to take place may be a breach of the landlord's mortgage terms;
• the removal of the guarantor raises concerns as to whether the tenant will be able to meet the obligations under the lease; and
• the landlord may find that they have lost part of their bargaining power in negotiations with the tenant.

By contrast, a tenant is maybe more likely to benefit from a tacit renewal as:

• the guarantor is no longer responsible for the liabilities of the tenant; and
• they are able to remain in the demised premises to carry on their business without having to immediately negotiate a new lease (the terms of which may not be as favourable as the expired lease, depending on the bargaining power of the landlord and the tenant).

Equally, a tenant may find that they are unexpectedly bound into a lease. They will remain liable for the rent and the performance of all other covenants until the renewed lease has been terminated. This may adversely affect the tenant's relocation plans or ongoing business model.

Terminating a tacit renewal

As the renewed lease is a periodic tenancy, it is brought to an end by notice. Either party may serve notice on the other side to terminate the tacit lease.

The length of the notice period required to terminate a tacit tenancy is governed by the Loi (1919) sur la location de biens-fonds. The 1919 Law is complicated and antiquated but lays out the way in which notice periods to terminate periodic tenancies are calculated. They are based on the nature and size of the property, the rent and the frequency with which rent is paid.

In some cases, the notice periods may be lengthy; up to a period of at least two years expiring at Christmas.

Preventing a tacit renewal

The most obvious way in which a tenant can prevent a tacit renewal is by vacating the premises at the expiry of the lease. It should be noted that a tenant who remains in occupation (but where tacit renewal does not take place) is likely to be a trespasser. 

Generally, the landlord will have the higher vested interest in preventing the tacit renewal of a lease, preferring instead to either formally renew a lease or recover possession of the premises.

A landlord may generally demonstrate their intention not to tacitly renew the lease by:

• refusing to accept rent after the old lease term has expired;
• writing to the tenant to expressly state that they do not wish to tacitly renew the lease; and/or
• promptly commencing proceedings to evict the tenant following the old lease's expiry.

Conclusion

A tacit renewal often happens unintentionally; frequently without the landlord and tenant even knowing that a tacit renewal has occurred. 

Tacit renewals are relatively easy to prevent provided that the landlord and tenant are pro-active in taking steps to demonstrate their intention not to tacitly renew the lease. Parties to leases should:

• keep weather eyes on the lease expiry date; 
• commence formal renewal negotiations well in advance of the expiry date (where the parties so wish); and
• take steps to preserve their position where the old lease has expired.

If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.