Contracted in or out? Excluding leases from the Landlord and Tenant Act

The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 was supposed to streamline the process of excluding business leases from the Landlord and Tenant Act 1954. Key points A tenant’s solicitors had been authorised to accept service of notices warning that leases would be contracted out of the 1954 Act An individual employed by the tenant had been duly authorised to sign statutory declarations accepting that the tenant would not have security of tenure Formulae inserted in the statutory declarations, instead of dates, were acceptable and the leases had been validly contracted out of the 1954 Act It abolished the requirement for court orders and requires landlords to serve warning notices on prospective tenants, explaining the implications of giving up statutory renewal rights, instead. Tenants must then sign formal declarations before entering into any legal commitment, confirming that they accept the consequences of contracting out. The new requirements created several uncertainties, but TFS Stores Ltd v BMG (Ashford) Ltd [2019] EWHC 1363 (Ch) resolves a number of them. The case concerned leases of perfume shops in six designer outlets owned by different landlords, which were, supposedly, excluded from the 1954 Act. But there were three questions. Did the tenant’s solicitors have their client’s authority to receive the landlords’ warning notices? Was the employee who signed the declarations for the tenant authorised to do so? And were the declarations valid? The agreements to exclude the 1954 Act would have been invalid if the answer to any of these questions had been “no”, and the tenant would have been entitled to new leases. But the judge answered all three of the questions in the affirmative, paving the way for new lettings – possibly to competitors, who would inherit any goodwill created by the tenant. Service The 2003 Order states notices “must be served on the tenant”. But “the tenant, or a person duly authorised by him” can make a declaration in the form, or substantially in the form, prescribed, and the contrast between these provisions causes some landlords to serve notices directly on tenants, despite decisions in Galinski v McHugh [1989] 1 EGLR 109 and Yenula Properties Ltd v Naidu [2002] 3 EGLR 28 suggesting service on a tenant’s solicitors will usually suffice. The landlords had chosen to serve warning notices on the tenant’s solicitors in this case. But the court was not asked to consider if this was in order. The tenant accepted the judge was bound by Galinski and Yenula and launched a different attack on the notices, reserving any arguments about service for a higher court. Authority The tenant claimed that its solicitors were not authorised to accept service of the warning notices. But the judge ruled that its solicitors had had both actual and apparent authority to do so. Actual authority, express or implied, flowed from their instructions to deal with the transactions described in the heads of terms, which were agreed by the tenant and stated that the leases were to be excluded from the 1954 Act. Alternatively, the tenant’s solicitors had apparent authority to receive the warning notices and to inform the landlords’ solicitors that they were authorised to do so. The judge was also satisfied that the employee (a retail director, but not a statutory director of the company) who signed the statutory declarations for the tenant had had actual or apparent authority to do so, because he had been tasked with putting things in place to enable the company to execute the lease. The tenant’s solicitors had also represented that he was authorised to make the statutory declarations by providing them to the solicitors acting for the landlords. Curing irregularities The leases stated that warning notices had been served, that the tenant (or someone authorised by it) had provided the statutory declarations, that the procedures in the 2003 Order had been followed, and that the leases were contracted out. But the judge stated that he would not have allowed the landlords to use these statements to ratify any irregularities in the process, or to create an estoppel. The law requires assent to what is being ratified, and the tenant had not appreciated what was being asked of it. And the court would not allow an estoppel, which creates rules of evidence as between parties, to negate the statutory policy that underpins key protections in the 2003 Order. Declarations The form of declaration leaves space for parties to insert the start date of the term. But the parties did not use dates. They inserted one of the following formulae instead: “a date to be agreed”, “the date on which the tenancy is granted”, and “the access date under the agreement for lease”. Were the declarations defective because dates were required, or should they have been ascertainable from the formulae? And what did the court make of the difference between lease commencement dates (the date on which a lease is executed and the interest begins) and term commencement dates (the date used to calculate when a lease will expire, which may pre- or post-date completion)? The judge ruled that the formulae were acceptable. Dates are used to identify leases, but the prospective lease will not have a date when a tenant makes its declaration. So parties can use either the lease commencement date or the term commencement date to help identify the prospective tenancy. Interestingly, the judge also suggested that a declaration might, in some circumstances, be “substantially in the form” prescribed, even if the date were to be left blank. Double value Landlords are entitled to double value under section 1 of the Landlord and Tenant Act 1730 if a tenant holds over after a lease has expired, knowing that it is not entitled to. But the judge relieved the tenant from liability as it had been legally advised, and there was no evidence it had argued its case in bad faith. Allyson Colby is a property law consultant Photo: Photoalto/Shutterstock