Seasonal demand for short-term lettings in the food sector
19 December 2022
The festive period in the UK is the peak time for food consumption, meaning the lead-up to Christmas is a busy time for the food sector. Businesses within the sector may face a hurdle in the run-up to Christmas if they need to increase the capacity of their premises for a short period to keep up with seasonal demand.
If business owners cannot utilise any more space at their current premises or if the property is not fit for their intended purpose during this period, looking for alternative premises on a short-term basis may be an option. Birketts’ Food Sector Team has previously produced helpful articles on finding suitable premises to suit your food business requirements, which can be found here (https://www.birketts.co.uk/legal-update/suitable-food-business-premises/).
What are your options?
There are several ways to document a right for a business to occupy premises on a short-term basis – each of the options is discussed below:
- Short term lease
If the existing premises of a food business cannot provide more capacity for the increased needs during the build-up to the festive period, then taking a short-term lease of additional property on the site they are situated (if there is availability) or at a different location may be a suitable alternative.
A lease grants the tenant exclusive possession of the property for a fixed period of time. This provides the tenant with a degree of control and security as it can exercise the rights of the landowner to the exclusion of others, except for any rights reserved by the landlord under the lease. A short-term lease also provides certainty for the tenant as the period of occupation is determinable. Although usually not applicable to such short-term leases, in certain circumstances, where the premium or rent and any VAT (if any) under the lease is particularly high, the grant of such a lease may attract stamp duty land tax liability, which is something which should be considered at the outset.
When entering a short-term lease, it is vital to consider the terms and extent of the liability the tenant is agreeing to. In particular, consideration will be needed to the extent of the demise granted to the tenant, the length of the term and any option to break or renew, the tenant’s repair obligation, alterations and termination clauses (including dilapidations at the end of the term). Business owners will want to ensure that they are not committing to terms that do not provide them with the required flexibility.
A licence differs from a lease, and it is a personal right or permission to occupy. It does not provide exclusive possession nor confer an interest in land on the occupier. For example, suppose there is a need for additional space for use as storage at a property. In that case, a licence may be the most appropriate for allowing storage at a property where the business does not require exclusive possession.
A licence can be for a fixed period and may attract a licence fee payable by the occupier to the landowner. If the landowner sells the property, the licence will end meaning there is little security offered. Under a licence, an occupier would have little control over the property because there is no right to exclude others. The grant of a licence does not usually attract stamp duty land tax.
- Tenancy at Will
A tenancy at will is distinguished from a lease and a licence as it is a tenancy which either party may determine at any time. This determination can be made by the tenant giving up possession or the landlord demanding possession. It does not create an estate in land and cannot be assigned by the tenant. There may need to be more security for the food business if they cannot give up possession as quickly as required by the tenancy.
The nature of a tenancy at will means that there is no fixed term and is outside the remit of the Landlord and Tenant Act 1954 and confers no security of tenure on the tenant (i.e. a right to renew the term of the lease). A tenancy at will provides the tenant with an interest in land and exclusive possession, giving the business some control over the property. Stamp duty land tax is not usually payable on the grant of a tenancy at will.
The run up to the Christmas period poses challenges for the food sector; whilst some of the options available to businesses for short term lettings have been explored, each business should consider its unique circumstances and seek advice to ensure the correct arrangement is entered into. Please get in touch with Rebecca Bond if you have any queries concerning your food premises.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2022.