Tenants Not Coming Up Smelling of Roses
Background
Unless the Landlord and Tenant agree that the Landlord and Tenant Act 1954 won’t apply to a new lease, a Tenant has a statutory right to renew its lease at the end of the term.
If it is agreed that the 1954 Act won’t apply to a lease, the tenant will not have a right to a new lease when the current lease comes to an end. A lease where the 1954 Act does not apply, is known as a contracted out lease.
For a contracted out lease, a specific procedure needs to take place before the lease is completed.
The procedure for this is set out in legislation and it is very prescriptive and therefore easy to fall foul of. As part of this process, a tenant has to sign a declaration confirming that the 1954 Act does not apply.
One potential issue with this is that the declaration requires a tenant to specify in the document, the start date of the lease. The possible issues with this are:
- If the start of the lease is by reference to the date that the lease actually completes, then potentially the start date of the lease will not be known when the tenant makes their declaration.
- If the start of the lease is contingent on another event, for example, the grant of planning permission or completion of building works, again the start date might not be known.
- If a lease is a renewal, the start date stated in the lease maybe the day after the expiry of the previous lease, but the lease is actually completed sometime after this date as the parties are negotiating the terms of the new lease.
In TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) General Partner Ltd; BMG (Ashford) Ltd v TFS Stores Ltd [2021] EWCA Civ 688, the Court of Appeal was asked to decide on such this issue.
The Case
The Fragrance Shop (TFS) had leases of various units within different retail centres. The start date inserted into some of the declarations for their leases included:
- the date on which the tenancy was granted;
- the date on which the tenant would be given access under an agreement for lease; and
- the date to be agreed between the parties.
When the leases in question came to an end, the landlords decided not to renew the leases and let the stores to a competitor of TFS. The tenant said that as specific dates had not be stated in their declarations, the contracting out procedure had not been followed correctly and so the leases were not contracted out leases and they were entitled to new leases under the terms of the 1954 Act.
The Decision
The Court of Appeal agreed with the High Court decision that the various forms of wording for the start dates used were valid. The purpose of the declaration was for the tenant to acknowledge that:
- the proposed lease is excluded from the renewal protections contained in the 1954 Act
- the Landlord has served the relevant warning notice about the implications of contracted out lease on the tenant; and
- the tenant has read the warning notice and accepts what entering into a contracted-out lease means for them.
The Court of Appeal decided that the use of a formula or descriptive wording to indicate when the lease will start in a tenant declaration is acceptable, provided that the declaration read as a whole is sufficient to identify the lease.
What does this mean for Landlords?
Whilst care should be taken to review a tenant’s declaration prior to completion of a lease, Landlords can breathe a sigh of relief that a tenant cannot knowingly exploit the contracting out process, if the start date of a lease is not known at the time that the declaration was made.