Delays in completing transactions such as leases are, unfortunately, sometimes unavoidable. Where there are delays in a lease being dated but a tenant is allowed into occupation before then, dates can be crucial. A recent case reminds us that there can be a difference – and consequences – where leasehold liabilities start from the actual completion date of a lease rather than from the date that a tenant is granted access.

It is not uncommon for landlords, tenants and guarantors, when agreeing heads of terms, to decide that rights and obligations such as rent free periods, warranties and guarantees are to start on completion of a lease. What happens though where completion of a lease is delayed but a tenant has been allowed early access to the premises? Where a timetable has changed should a tenant’s obligations start from the access date or from when the lease is actually completed? The case ofXenakis and Corke v Birkett Long LLP is a reminder that where the above happens, the start and end dates of rights and obligations in a lease may need to be checked before the lease is actually entered into.

What happened?

In September 2005 the landlord and tenant agreed to a 20 year lease to the tenant company. Mr Xenakis and Mr Corke, as directors of the tenant company, would act as guarantors for three years. As is often the case it was also agreed that were the tenant company to become insolvent, Mr Xenakis and Mr Corke would enter into a new lease for the remainder of the original term. Both the tenant company and the two guarantors signed their part of the lease on 19 January 2006. While completion was expected to take place the next day, it didn’t actually occur until 15 December 2006 as the landlord didn’t sign its part of the lease until then. In the meantime it was agreed that the tenant could access and occupy the property. The tenant took occupation on 23 January 2006 with the intention that formal completion of the lease  would follow in due course.  The lease stated that the three year guarantee period only started from the date of the lease rather than the date when the keys were released to the tenant. Therefore whilst the guarantors thought that their guarantee obligations would expire in January 2009 (ie, three years after January 2006) it didn’t actually run out until 14 December 2009 (ie, three  years from 15 December 2006 which was the actual date when the lease was completed). By November 2008 the tenant’s business was struggling financially.

Consequences

Mr Xenakis and Mr Corke had to keep the business going until the guarantee period expired in December 2009 rather than allowing the business to fail before then. If they did wind up the tenant company in January 2009 they would have had to personally take a new lease for the 17 years remaining.

Lessons learned

Where completion is delayed the original timelines for the commencement and end of leasehold obligations and entitlements should be checked to see if they need to be reviewed. This is to take account of any revised timetable and to avoid potentially time consuming and expensive work in the future in having to deal with the adverse consequences arising from a delayed completion.