In the recent case of TFS Stores Limited v The Designer Retail Outlet, when considering whether a number of leases had been validly contracted out of the Landlord and Tenant Act 1954 (LTA 1954), the High Court reached a decision which is of significant importance to landlords, tenants and practitioners.

Background

The Fragrance Shop (TFS) is a perfume retailer with over 200 stores located in the UK. This case concerns six of these locations where TFS entered into tenancies in six designer retail outlet centres, each owned by different landlords. Under each of these tenancies TFS had agreed to contract out of the security of tenure provisions contained in the LTA 1954. Upon the expiration of their term, the landlords decided that they would not renew the tenancies as they intended to let the units to commercial rivals of TFS. In an attempt to remain in occupation of the six units, TFS argued that the leases had not been validly contracted out of the LTA 1954 and therefore they were entitled to remain in possession and seek a lease renewal at the end of the fixed term.

Contracting out

Under the LTA 1954 a tenant can remain in occupation of the commercial premises following the contractual expiration of their tenancy, and seek to renew their lease. However, landlords and tenants are able to mutually agree that these protections afforded by the LTA 1954 will not apply to a given tenancy and so a tenant will not have an automatic right to remain in the property, or seek a renewal tenancy. The landlord would also be entitled to recover possession of the property as a result of this ‘contracting out’ procedure.

In order to successfully contract out, the landlord must first serve a warning notice on the tenant, before entering into the tenancy, explaining that the rights are being waived. The tenant, or a person authorised by it, is then required to make a statutory declaration before entering into the lease, stating that they acknowledge the contents of the notice and accept the consequences of contracting out of the LTA 1954. A clause must also be inserted into the lease confirming that the procedure under the 1954 Act has been followed and that it has been contracted out. This procedure can be found in Schedules 1 and 2 of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

The issue

An issue arose between the landlords and TFS as to whether TFS was entitled to the protection under the LTA 1954.    The Court was asked to consider three issues with the contracting out process:

1. Whether the tenant’s solicitors had authority to receive the landlord’s notices, as the tenant’s agent;
2. Whether the individuals who made the declarations on behalf of the tenant company had authority to do so; and
3. Whether the fact that the tenant’s declarations did not contain a fixed term commencement date for each tenancy meant that the declarations were invalid.

Decision

In relation to the first issue, TFS claimed its solicitors did not have the necessary authority to receive the landlord’s notices as the tenant’s agent. The Judge came to the conclusion that he was “entirely satisfied that there was actual authority…to accept service of the relevant Warning Notices”, as the solicitors were instructed to do everything necessary to bring the matter to completion. This could be construed as express authority, or as “implied authority, incidental to the express authority, to bring the matter to completion”.

Regarding issue two, the Judge was dismissive of the tenant’s claim as he was “wholly satisfied” that TFS’s representatives had the authority to execute the declarations. A number of these declarations were made by the tenant’s retail director, Mr Thompson, as he was one of the tenant’s employees who had the responsibility of negotiating leases.  The Court held that he had the actual authority from TFS to make these declarations, due to there being no evidence to suggest that his authority to negotiate and complete leases did not extend to this.

Finally, addressing issue three, the statutory declarations require the term commencement date of the proposed leases to be inserted. The difficulty that lawyers often have is whether the term commencement date has to be the actual date of the grant of the tenancy, or the date on which the tenancy is expressed to commence. It has become common practice, when referring to the commencement date in the statutory declarations, to insert the wording ‘as that contained in the lease as the commencement of the term’. In this case, the Judge held that it was not necessary to have an express term commencement date, and the omission of one did not invalidate the declarations.

Impact

This case will refreshing for landlords as it has illustrated how the courts will take a robust approach to the use of the contracting out procedure. They will be relieved that statutory declarations do not need to state a fixed calendar date as the term commencement date in order to be valid. In this respect, the decision supports previous case authorities where the court has refused minor technical issues with the procedure in order to enable tenants to assert they have protection under the LTA 1954.

Also, aside from being good news for landlords, this case has also acted as a useful reminder that there is a strict procedure that should be followed carefully when contracting out.