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Has your lease been validly contracted out of the 1954 Act? Landlords can breathe a sigh of relief

Earlier this month the High Court handed down its judgment in the case of TFS Stores Limited v The Designer Retail Outlet Centres (Mansfield) General Partner Limited and others which considered whether a number of leases had been validly contracted out of the Landlord and Tenant Act 1954.

Background to the case

TFS Stores Limited trades as The Fragrance Shop at a large number of locations across the UK. This case concerns just six of those locations where TFS entered into six contracted out leases with different landlords at various premises across the UK ranging from Ashford, to York, to Swindon.

The landlords decided not to renew the leases, which TFS was not very happy about. In response, TFS claimed that the leases had not been properly contracted out of the 1954 Act.

Contracting out

A prospective landlord and tenant can agree to contract out of the tenant protections afforded by the 1954 Act. This procedure involves the landlord serving a notice on the tenant in the form, or “substantially in the form” set out in Schedule 1 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.

The parties must also comply with the requirements specified in Schedule 2 to that order, which include the following:

  • the tenant making a declaration acknowledging that they are losing their 1954 Act protection;
  • ensuring that the declaration is made before the tenant becomes bound to take the tenancy in question; and
  • including reference to the contracting out procedure in the relevant document creating the tenancy (usually a lease or agreement for lease).

Issues

TFS focussed on three issues with the contracting out procedure:

  • Whether TFS’s solicitors had authority to receive the warning notices.
  • Whether the TFS representative who signed the declaration had authority to do so.
  • Whether the declarations were invalid because they failed to specify the commencement date of the term of the proposed tenancies correctly.

The Court’s decision

The Court’s decision allows landlords, and their solicitors, to breathe a sigh of relief.

Authority of TFS’s solicitors

In relation to whether TFS’s solicitors had authority to receive the warning notices, the judge concluded that he was “entirely satisfied that there was actual authority…to accept service of the relevant Warning Notices“. The judge considered that this “can be analysed as express authority to accept service of the Warning Notices as part of the authority to do everything necessary to bring the matter to completion or as implied authority, incidental to the express authority, to bring the matter to such completion“.

Authority of TFS’s representative

In relation to the authority of TFS’s representative to sign the declarations, the judge was similarly dismissive of the tenant’s claim. The judge was “wholly satisfied” that TFS’s representative, Mr Thompson who was the retail director of TFS, had actual authority to execute the declarations.

The judge also considered that Mr Thompson had apparent authority to execute the declarations. The tenant’s solicitors had authority to represent that he did, and the solicitors made this representation to the landlords by providing the declarations signed by Mr Thompson. The judge found that the landlords clearly acted on this apparent authority.

No fixed term date

The leases in question did not specify a fixed term commencement date, and in some cases it was not possible to tell what the actual term commencement date would be.

The judge concluded that the failure to include a fixed term commencement date in the declarations did not invalidate them. The judge considered that the purpose of the wording in the declaration was to allow the tenancy in question to be identified and so using either the date that the interest under the lease commences or the date from which the term is calculated are both “adequate identifying badges of the prospective tenancy“.

What does this case tell us?

This case provides useful guidance for landlords and their solicitors on certain aspects of the contracting out procedure.

Fortunately for the landlords in this case, the Court took a dim view of the tenant’s attempts to wriggle out of the contracting out process; however, this case does serve as a useful reminder that the contracting out process is a key procedure which must be carefully complied with as it may, at some future point, come under scrutiny from tenants keen to avoid being decamped from their prime locations.

TFS Stores Limited v The Designer Retail Outlet Centres (Mansfield) General Partner Limited and others [2019] EWHC 1363 (Ch)