A tenant was allowed into occupation of business premises in anticipation of terms being agreed for the grant of a lease. The tenant paid £2,500, which was expressed, in a receipt signed by the landlord, as being "rent for 3 months in advance". Almost a year later, a lease had not been granted and the landlord wanted possession. The Court of Appeal confirmed that no periodic tenancy could be inferred. The payment of rent was only one, albeit important, factor to be taken into account. More importantly, when the tenant had been allowed into possession it was in anticipation of a lease being granted, the parties not having agreed its terms. Therefore, no tenancy had been created.
Nicholls LJ: In consensual arrangements, possession is often taken before the tenancy is signed. The law will imply, from what was agreed and all the surrounding circumstances, the terms the parties are to be taken to have intended to apply. “Thus if one party permits another to go into possession of his land on payment of a rent of so much per week or month, failing more, the inference sensibly and reasonably to be drawn is that the parties intended that there should be a weekly or monthly tenancy.” Implication has to be “sensible and reasonable”. However, where the parties have not yet agreed terms, they cannot be taken to have agreed to a periodic tenancy, and the occupier may be there purely on a mere licence.