The Court of Appeal has given landlords and their solicitors welcome assurance that leases can still be validly contracted-out where a tenant’s declaration does not specify the exact calendar date of the new lease.

Contracting-out procedure

Under Part II of the Landlord and Tenant Act 1954, tenants are afforded security of tenure of their business premises. Parties can “contract-out” of that security, provided certain defined steps are taken. In particular, under section 38A a landlord must serve a “warning notice”, setting out for the tenant the consequences of contracting-out. The tenant must then give a declaration “in the form, or substantially in the form” prescribed. That declaration must identify the relevant lease that the tenant will enter into.

Failure to take these steps is likely to mean the new lease willnot be contracted-out, with the significant consequence of giving the tenant security of tenure.

One of the details to be included in the declaration is the date the new lease is to be granted – the form of declaration to be given by the tenant includes the words “for a term commencing on………….”

TFS Stores Limited v BMG Ltd

In TFS Stores Limited v BMG Ltd, the tenant argued that the contracting-out procedure had not been followed validly because declarations it gave relating to a number of its leases did not specify a precise calendar date for the commencement of the new lease. Instead, the relevant declarations described the new leases using phrases like “for a term commencing on the date on which the tenancy is granted” or by reference to a formula for ascertaining the date in an earlier agreement for lease. 

The reason for not including an exact date is entirely practical - in many cases, the parties do not know the precise calendar date on which the new lease will start at the point the contracting-out procedure is dealt with. This is why alternative wording is often adopted, as in this case. If the section 38A procedure were to require a calendar date, as the tenants argued here, either the contracting-out procedure would have to be delayed until the date was ascertained (potentially delaying the letting itself), or, if the date changed, the process repeated with fresh documentation.

The Court of Appeal held that this sort of alternative wording, without a calendar date, is capable of satisfying the requirements of the section 38A of the 1954 Act. The purpose of the prescribed contracting-out process is to offer the tenant sufficient warning of the significance of contracting-out and an opportunity to take legal advice, and to get unequivocal confirmation from the tenant that it is happy to proceed (by way of its simple or statutory declaration).

The Court of Appeal concluded that it would be contrary to commercial sense for section 38A of the 1954 Act to require a particular calendar date to be included, when in reality the parties are adequately aware of what it is they are agreeing to, and which lease they are contracting-out. That is particularly so given the additional administrative burden and scope for confusion if contracting-out procedures needed to be repeated to ensure an accurate calendar date was included.

This case provides clear authority that wording like “for a term commencing on the date on which the tenancy is granted” or referring to formulae in an agreement for lease is capable of describing the lease sufficiently for the purposes of contracting-out under section 38A of the 1954 Act.