Landlords scent victory

The Court of Appeal has unanimously held that a tenant’s statutory declarations given to landlords were valid even though they did not specify the precise term commencement date of the leases to be contracted out.

Landlords will be relieved that the Court of Appeal did not adopt an overly legalistic and commercially impractical interpretation of the contracting-out requirements.

Background

The parties to a lease can agree that the tenant will not have security of tenure under the Landlord and Tenant Act 1954, meaning that the tenant has no right to remain in occupation at the end of the lease. The agreement is contained in the lease but, before the lease or any agreement for lease is entered into, the landlord has to serve a prescribed form of warning notice on the tenant advising the tenant that it will not have security of tenure and the tenant has to give a declaration or statutory declaration to the landlord confirming that it has received and understood the warning notice. The form of declaration has to be substantially in the form required by statutory regulations. One of the statements that has to be included in the declaration is the proposed term commencement date of the lease.

Facts

TFS Stores Limited had entered into a number of leases of units in designer outlet centres. The contracting out process had been followed but the statutory declarations referred to the term commencement date being variously “the Access Date under the Agreement for Lease pursuant to which the tenancy of the premises will be entered into”, “a date to be agreed between the parties” or “for a term commencing on the date on which the tenancy is granted”. When the leases came to an end the tenant claimed that the contracting-out process had not been validly followed. Its claim was rejected in the High Court but the tenant appealed on the grounds that the statutory requirements for contracting out a lease required the declaration to include the precise term commencement date as the date the lease is entered into and that general descriptions of the term commencement date invalidated the contracting-out process.

Decision

The Court of Appeal held that a declaration will comply with the relevant legislative framework in that it will be “in the form or substantially in the form” prescribed if the declaration as a whole fulfils all the essential purposes of the prescribed form. The essential purposes of the declaration as a whole are, said the Court of Appeal, clear. They are that the tenant should acknowledge (1) that the proposed lease excludes the security of tenure provisions of the 1954 Act, (2) that the landlord has served a Warning Notice in proper form, and (3) that the tenant has read the Warning Notice and accepts the consequences of entering into the lease.

There was nothing that required the term commencement date to be the date that the lease was to be completed – it could be the date from which the contractual term was to be calculated. To interpret those words as referring only to the former date would introduce undue technicality as well as leading to practical problems which Parliament cannot have intended.

There was no reason why the declaration should not be completed by inserting a formula (such as “from the Access Date…”) or even by words such as “from a date to be agreed”, provided that the declaration read as a whole is sufficient to identify the lease in question. The declarations in issue in this case were in the form or substantially in the form prescribed by the legislation. There was no doubt which leases they referred to and in each case the declaration made clear that the tenant had received a Warning Notice and understood and accepted that the lease would have no security of tenure.

It is understood that TFS Stores Limited is seeking permission to appeal the decision.

Comment

The Court of Appeal’s decision is to be welcomed. A precise legally pedantic interpretation of the contracting-out procedures would have put many thousands of leases at risk of having inadvertently granted tenants security of tenure where the exact date when the lease commenced had not been included in the declaration. As the Court of Appeal pointed out, the policy objective of a simple contracting-out procedure that ensures the tenant receives fair notice and understands that it is entering into a lease without security of tenure would be defeated by a legalistic interpretation. The completion of a declaration by the tenant would become a trap for landlords – particularly as it is the tenant who completes the declaration and who would be able to sabotage the process by deliberately inserting the wrong date in the declaration.

TFS Stores Limited v The Designer Retail Outlet Centres (Mansfield) General Partner Limited and others