Beware! You may be a trespasser in your property

What happens when the term of your lease agreement expires and you stay on? In the eyes of the law, have you migrated to becoming a statutory tenant or a trespasser? The case of Oteri Holdings Ltd. v Heritage Banking Co Ltd. (2020) LPELR 50802 (CA) highlights the legal differences and explains the options one has under either.

Two companies—shall we call them Company A and Company B?—sometime in 1985, entered into a lease agreement where Company A leased to Company B the left wing of a four-floor office building located in Apapa, Lagos for a term of 20 years with an option to renew. However, in the lease agreement, there contained a clause, which stated that there would be an automatic renewal for a further period of five years and, if Company B (the Tenant) did not want the renewal for five years after the initial term granted under the lease agreement, then it must be communicated between six months and 12 months.

At the expiration of the 20-year lease, Company B, by various letters, indicated interest to renew the lease and promised to pay the sum between N5 million and N10 million as outstanding rent on the property. There was, however, no acceptance of or consideration for the offer by the Landlord (Company A). After the expiration of the term, the Landlord brought an action against the Tenant at the High Court, where it found in favour of the Tenant and dismissed the Landlord’s suit, but the effect of this came at a cost and so the Landlord decided to appeal to the Court of Appeal.

“This poses the question: In what capacity does a tenant remain in possession of a property after the term has been determined? Is such a statutory tenant who enjoys legal protection by virtue of specific statutory provisions, or has the tenant become a trespasser?”

Where a tenant is desirous of exercising such an option to renew a lease, he must conform exactly to the conditions set out in the lease agreement. This is because, for there to be a valid contract between parties, there must be an offer, acceptance, and consideration.

In this case, there was an offer but this is not enough to create a valid contract. Therefore, the letters from Company B can only be interpreted as an interest in the renewal of the lease and an intention cannot culminate in an agreement between parties because there was no express agreement from the Landlord or any document to show that there was a renewal of the lease. To this end, the lease agreement between the companies came to an end after the original term of 20 years expired as contained in the lease agreement.

This poses the question: In what capacity does a tenant remain in possession of a property after the term has been determined? Is such a statutory tenant who enjoys legal protection by virtue of specific statutory provisions, or has the tenant become a trespasser? Furthermore, where the tenant remains in possession, is the landlord entitled to rent or mesne profits? We will be delving into this next week. Stay tuned.