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Contracting out the 1954 Act – what can you get away with?

June 2019

This week the High Court had a rare opportunity to consider some practical issues that arise when commercial leases are excluded from the Security of Tenure Provisions in the Landlord and Tenant Act 1954, which are designed to protect commercial tenants.

Usually, commercial tenants are by statutory right able to renew their lease once it expires. However, parties also have the option to enter into a declaration (or in this case, a statutory declaration, where leases are entered less than 14 days after a notice is served) to exclude the security of tenure provisions. “Contracting out” would mean tenants would not be able to obtain a new lease when their present lease expires.

The High Court looked into a series of leases entered into by The Fragrance Shop, a perfume retailer which had 6 leases at different retail outlets.

In each case, The Fragrance Shop sought to argue that the contracting out procedure had not been dealt with correctly and that they were entitled to renew their leases when they came to an end; a consequence the Landlord wished to avoid in order to let the units to competitors.

The High Court was asked to consider three key questions:

1) Did the Tenant’s solicitors have authority to receive contracting out notices as the Tenant’s agent?

Held: The Judge held that there was either actual or implied authority for the Tenant’s solicitors to accept the notice. The authority flowed from their instructions on behalf of the Tenant to bring the transaction to completion. By necessity, this would include accepting service of the contracting out notices.  

2) Did the person who made the declaration in each case have the authority to do so?

Held: In these Fragrance Shop cases the Retail Director who had entered into the Statutory Declarations was not an actual Statutory Director of the Tenant. It was held that whilst they were not an actual director, there was no evidence that the Retail Director would not have the authority to enter into the Statutory Declarations. Therefore, the validity of the Declarations could not be challenged on the basis of the person making them not having the authority to enter into them. The Landlord also claimed that given that the cases had been completed by solicitors with an endorsement referring to the Statutory Declaration, it would not be possible for the Tenant to then claim the Declarations had not been entered correctly by their own solicitor.

3) Did the Declarations need to have a Fixed Term Commencement Date to be valid?

Held: The Court held although the wording of the Statutory Declaration required a date to be added, the failure to enter a specific date would not invalidate the Statutory Declarations as the purpose of entering a date is to clearly identify the Lease. However, if the Lease can be identified by referring to the date as “the Commencement Date under the Lease,” then no specific dating is required.

What this decision means for landlords

This verdict will likely be appreciated by many lawyers for its all-round common sense approach. 

  • Many solicitors adopt the unspecified date approach when completing the declarations and this approach has been approved by the High Court.
  • A landlord’s solicitor can serve notice upon the tenant’s solicitor and can generally accept the signature on the Statutory Declaration as coming from a party with the authority to bind the tenant.
  • Notices can also be served upon the solicitor for the tenant unless the solicitors specifically advise that they are unable to accept service.