The Upper Tribunal (UT) has reinforced the legal principle that tenancies are not perpetually renewable unless the agreement explicitly states so with unequivocal wording.
Facts:
The case involved a dispute between a landlord, Mr. Bird, and his tenant, Mr. Constantine, over a rent increase. Mr. Constantine's tenancy was originally granted for a period of 12 months in March 2017. The agreement stated that the rent of £1,256.25 was "payable monthly". Moreover, the agreement recorded that, "on this occasion", the parties had agreed that it should be paid as a single sum in advance. Therefore, the total rent payable in this instance was £15,075.00.
The lease contained a clause that gave the tenant an "option to renew for a further 12 months at the same rent". When the landlord tried to raise the rent under the provisions of the Housing Act 1988, Mr. Constantine argued that this clause created a perpetually renewable tenancy under Section 5(4) of the 1988 Act, which would prevent a statutory periodic tenancy from arising.
Later, in March of 2024, the landlord served a notice under Section 13 proposing a new rent of £1,450 per month, and Mr. Constantine responded by referring the matter to the First-tier Tribunal (FTT). Here, he claimed that he was entitled to renew the tenancy every year at the original rent, thereby removing any prerogative of the FTT to set a new market rent.
Decision:
The UT ultimately held that a tenancy renewal clause will not create a perpetually renewable tenancy unless expressed in unequivocal terms. The Court's reasoning relied on a long-established legal principle that courts lean against perpetual renewals of tenancies. For a tenancy to be perpetually renewable, the wording of the agreement must be unequivocal and clearly express that intention. In this case, the wording of the clause ("option to renew for a further 12 months") was ambiguous. It did not explicitly state that the option would be included in the renewed tenancy, which is the kind of unequivocal wording required to create a perpetually renewable right, nor does it explicitly exclude such a renewal option. Because the wording was not unequivocal, the Court concluded that the tenancy agreement gave the tenant the right only to renew the lease once. After that single renewal, the tenancy came to an end, and a statutory periodic tenancy arose under the Housing Act. This, in fact, gave the FTT the authority to determine the new market rent.
Implications:
This judgement strongly reinforces a landlord's position by confirming that courts are highly reluctant to find a lease to be perpetually renewable. It provides assurance that, unless a tenancy agreement explicitly and unequivocally states that a renewal option is part of the newly renewed lease, the landlord retains the right to use the statutory process to raise the rent to a market rate after the initial fixed term and any single renewal has expired. This protects landlords from being locked into an indefinitely low rent due to ambiguous wording.
The case serves as a cautionary tale for tenants. It clarifies that a simple "option to renew" clause does not guarantee a perpetual right to a fixed rent. Tenants should be aware that such clauses will be interpreted strictly by the courts, and if the wording is not unequivocal, the right to renew will likely be limited to a single term. This highlights the importance of tenants seeking clarity in their lease agreements and understanding their rights and obligations after the fixed term ends, particularly with regard to a statutory periodic tenancy.
The decision underscores a well-established legal principle that only unequivocal wording will create a perpetual right of renewal. The case demonstrates that any ambiguity in a contract will be resolved by leaning against a construction that is generally unlikely to have been what the parties originally intended.