Shared occupancy

Who is in occupation?
In deciding whether the actual tenant is really in occupation, a court will look at who the staff using the premises are employed by, who they are paid by and who they take instructions from. If they are employed by or taking instructions from someone other than the tenant, it is likely that the tenant has parted with occupation of the premises. Usually this will be prohibited — although some leases only restrict parting with possession which is rather different.

The most common example shared occupancy is where a lease is taken by an individual for occupation by a company wholly owned by the individual. In this circumstance the tenant will need to ensure that the lease permits sharing occupation with companies wholly owned by the tenant.There are provisions in the Landlord and Tenant Act 1954 giving protection where the property is occupied by a company which is a member of the same group of companies as the tenant. However, there is no protection where the tenant or the occupier is an individual. There are proposals to remove this anomaly, but for the moment it remains a trap for the unwary.

What effects would group reorganisations have?
Group reorganisations are an ever present possibility — for tax planning reasons as well as for operational reasons. Tenants should ensure that the lease permits occupation by other members of the group. That should not require landlord's consent, although it is not unreasonable for the landlord to ask for notice of the occupation by someone other than the tenant and an undertaking that the occupation will come to an end once the tenant and the occupier are no longer part of the same group. From a tenant's perspective, the definition of 'group' should be as wide as possible — there may be joint ventures, for example, which are not wholly owned that need to be catered for.

Partnerships?
Where the tenant is a partnership, the tenant will need to provide for changes in the identity of the partners and for releases for retiring partners.

However, the lease also needs to try to cater for the unforeseen — what is to happen if the partnership converts to a limited liability partnership, for example? The lease should permit occupation by the limited liability partnership or for an assignment to the limited liability partnership.

The same will apply to an incorporation of the partnership as a limited liability company. For practical reasons, partnerships often take leases in the names of service companies — the partnership will need to ensure that the lease permits occupation for the partnership business and that steps have been taken to ensure security of tenure under the 1954 Act.

Other sharing arrangements
Retail tenants in particular should bear in mind that for any large unit, they may well want to introduce a franchise or concession. Most landlords will agree to franchises or concessions provided no tenancy is created and provided the space included in the concession is limited to an agreed percentage of the trading area.

Other tenants may find they need to allow service providers to occupy. The trend towards outsourcing of functions increases the likelihood that an unrelated service provider will need occupation as it provides services to the tenant's business.

Each outsourcing arrangement will be different but it will be important to cater for outsourcing if possible when the lease is granted. The outsourcing may mean granting a licence to the service provider and there may be no parting with possession, but at the very least there is likely to be sharing of occupation which will be a breach of many leases.