Contracting Out of Security of Tenure of a Commercial Lease
The recent High Court case TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) Ltd & Others (2019) concerned contracting out procedures under the Landlord and Tenant Act 1954.
The Fragrance Shop (TFS) is a large perfume retailing operation with over 200 stores nationwide. This particular case concerned six retail outlet centres, with different landlords, where TFS was the tenant. All of the leases were, on the face of it, contracted out. On expiry of the leases, the landlords decided not to renew and to let the stores out to a competitor. TFS claimed that the leases had not been validly contracted out and so it was entitled to be granted new leases at the stores.
The 1954 Act protects the rights of a tenant to have a new lease granted; however, the landlord and tenant can agree that this protection will not apply. The process for agreeing this is called contracting out. The landlord serves a warning notice on the tenant explaining the rights being waived with the tenant making a formal declaration acknowledging they have received notice and are aware of the consequences of contracting out. When granted, the lease will state that the required procedures have been followed, including an agreement to removing the tenant's rights to remain in occupation.
Three questions arose based on the tenant's arguments:
- Did the tenant’s solicitors have the authority to receive the statutory warning notices served on them as agents of the tenant?
- Did the person making the statutory declarations on behalf of the tenant have the authority to do so?
- Did the fact that the statutory declarations did not contain a fixed term commencement date mean they were not valid?
In addressing these issues, the High Court concluded that the leases were validly contracted out and TFS did not have the right to remain in the premises. The Court confirmed that the tenant's solicitors would normally have the authority to receive warning notices on behalf of their clients and there is no necessity to give an exact commencement date, in the statutory declaration, as long as the words used clearly identify the tenancy.
In practice, issues concerning who has authority to receive notices and make declarations on behalf of tenants arise frequently but, in general, case law on the contracting out process is sparse. The process needs to be completed before the parties enter into a lease and they will not know the precise starting date of the lease at that time, so the case is particularly useful in clarifying this issue.
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