Courts Offer Practical Approach To Contracting Out Procedure

In a recent case, the court has adopted a practical approach to interpreting the rules of the contracting out procedure for business leases under the Landlord and Tenant Act 1954.

The case in question involved TFS Stores Limited v. The Designer Retail Outlet Centres (Mansfield) General Partner Ltd.

The Law

Under that Act, unless the landlord and tenant agree to ‘contract out’ prior to entering the lease, business tenants have the automatic right to a new lease when their lease expires.

Under the contracting out procedure the landlord serves a notice on the tenant the tenant provides a declaration agreeing to contract out of the right to a new lease before the new lease commences.

The facts

In this case six leases were considered by the court. The tenant of these six leases, The Fragrance Shop, argued that the leases were not correctly contracted out, which gave them security of tenure i.e. the automatic right to renew the lease at the end of the term.

Issues

There were three key issues raised to the court in the tenant’s argument:

  1. If the tenant’s solicitors were authorised to accept service of notice.
  2. If an employee of the tenant, not in a statutory director position, had the authority to execute, on the tenant’s behalf, statutory declarations; and
  3. If the statutory declarations were valid without an identified term commencement date for each lease.

The Decision

Did the solicitors have authority to accept service?

After looking at the tenant’s solicitors’ retainer, in which there were instructions to do everything necessary to complete a lease in accordance with the heads of terms (which expressly stated for the leases to be contracted out of the 1954 Act), the court were satisfied that the solicitors would have authority to accept notices. The court found that whether the solicitors’ authority was express or implied did not matter for these purposes.

Did the employee have authority to execute on behalf of the tenant?

The court looked at the following points and concluded that the tenant’s employee had the authority to execute the statutory declaration:

  • Although the employee was not a statutory director, he was a retail director and was the sole point of contact throughout the transaction.
  • There was nothing to suggest that the employee’s authority had been limited; and
  • On these occasions, the tenant had not provided a written authority confirming the employee could execute the statutory declarations as they had done in the past. The court concluded that the missing written authority made no relevance in these instances as the written authority in past matters only confirmed an existing authority.

Were the statutory declarations valid?

The declarations in relation to these six leases referred to the term commencement date as “a date to be agreed by the parties”, “date on which the tenancy is granted” and other phrases but not certain dates. The tenant argued that as there were no specific dates, the declarations were invalid.

The court determined that a fixed commencement date was not necessary as long as the term commencement date could be determined. The court found that as the formulae used in the declarations could identify the commencement date, the declarations were valid.

BRM comment

The case highlights the importance of authority both for serving notices and executing declarations to ensure the contracting out process under the 1954 Act is properly dealt with.

Landlords and Tenants should seek legal advice when dealing with contracted out commercial tenancies. BRM’s Real Estate team specialise in advising landlords and tenants on all aspects of commercial property matters and are experts in property investment, occupation and speculation.

Whether you are a landlord or a tenant, we can offer the experienced legal advice you need to ensure you and your business are protected.

For further information please contact our Real Estate Team on 0114 33497000. Alternatively, email our commercial property solicitors using our online contact form.

About the author

Damini Sharma is a trainee solicitor in our Commercial Department.

For more advice on this topic or related matters:

0114 3496986 damini.sharma@brmlaw.co.uk