Vacant possession: Occupied territory

In today’s market, turning a development round quickly is crucial. But, even when a property seems ripe for redevelopment, tenants with unsuspected rights can disrupt or even derail plans. I have recently seen a developer struggle to obtain possession because just one lease in the target arcade had an expiry date five years after the other units. This posed a threat to the development, and ultimately caused substantial delays and expense.

Tenants’ rights can cause problems for developers and contractors. These include hindering access, limiting working hours, or restricting activity, such as crane works or demolition. In some cases, the landlord may not be able to obtain possession at all. Under a typical building contract, these issues should be the landlord’s risk. They may end up granting thecontractor an extension of time, and paying the contractor’s costs for the delay.

It is essential to seek advice at an early stage to ensure that possession can be secured, before significant time and costs have been incurred.

An agreement does not need to be in writing for an occupier to have rights, so careful checks on who is in occupation are vital.

If the property is commercial, there may be tenants with security of tenure under the Landlord and Tenant Act 1954. This means that the tenancy can only be terminated on a fixed statutory grounds. Redevelopment is one of those grounds, but it is necessary to prove to the court that:

• The works cannot be carried out with the tenant in place
• There is a firm and settled intention to carry out the works
• The works can realistically be carried out.

Even if developers are well prepared, with items such as planning permission under their belt, tenants’ rights can incur substantial costs and delays. If matters are at a delicate stage - for example, applying for change of use - tenants can bring matters to a head before the landlord is ready. As a worst case scenario, the tenant could be awarded a new lease that would prohibit redevelopment.

If matters are at a delicate stage tenants can bring matters to a head before the landlord is ready

It is particularly important to note that possession will only be awarded on one unit if it can be proven that possession of the whole site can be obtained. It is therefore essential to checkthe expiry dates of all leases and to build contingencies into any plans, such as staged development.

A successful landlord will be obliged to pay the tenant statutory compensation. This can be costly, and must be factored into funding plans.

Meanwhile, developers can face even bigger difficulties with residential tenants. The rights of a residential tenant will depend upon how long they have been in occupation. With a modern Assured Shorthold Tenancy Agreement, the landlord can be certain of obtaining possession some two to four months after the contractual expiry date, provided that all the statutory requirements are met.

However, with Assured or Rent Act tenancies, obtaining possession depends upon the tenant being in breach. It has been said of protected tenancies that “the tenant could stay as long as he liked, unless the landlord would otherwise be reduced to living in a cardboard box in the middle of a motorway”. A grim prediction for a landlord who requires possession for redevelopment. Consequently, unless the tenant is in sufficient breach, the only way to guarantee possession is to offer alternative accommodation or to negotiate a cash settlement.

Even grand development schemes could be thwarted by just one occupier, and so again early investigations should be carried out before too many resources are dedicated to the project.
In the case of both residential and commercial premises, it is essential to check that there are no other rights which could bind the owner. Matters can become extremely convoluted in properties with multiple occupiers and a complex leasehold structure. In addition to tenants, other occupiers such as neighbours or squatters can prove extremely problematic. It is
also important to investigate other third-party rights such as easements, particularly rights of light, and restrictive covenants.

Overall, if a developer is considering a site that is not free from other interests it is critical to seek legal advice on putting together a vacant possession strategy before too much commitment is given to the scheme. This will ensure that they are in the best position in terms of planning, timing and costs. Failing to do so can prove at best expensive - and at worst cause the collapse of the scheme.

Jill Carey is a senior associate in the real estate disputes team at international law firm Taylor Wessing