Contracting out commercial leases – The lease is for a term commencing on…?
By denying permission to appeal in the case of TFS Stores Ltd v Designer Retail Outlet Centres (Mansfield) General Partner Ltd and other companies [2021] EWCA Civ 688, the Supreme Court has clarified how the term start date of a lease should be referred to in a statutory declaration, so that the lease is validly contracted out of the Landlord and Tenant Act 1954. Zara Fraczek-Streeter, a Solicitor in our Commercial Property team, explains.
By way of background, Part II of the Landlord and Tenant Act 1954 contains security of tenure provisions. If a lease of business premises is not excluded from these provisions, then a tenant has an automatic right to remain in occupation, and request a new lease, when the term of the lease comes to an end. A tenant does not have this right if the lease is ‘contracted out’ of those provisions. The contracting out process involves the landlord serving a warning notice on the tenant and the tenant making a statutory declaration or a simple declaration confirming that they have received the warning notice and understood its consequences. Please see our security on tenure article below for further information.
The declaration, whether statutory or simple, needs to be in the form, or substantially in the form, prescribed by statute. The prescribed form of declaration states that the lease is “for a term commencing on……..” and allows the blank space to be filled in with the term start date as appropriate.
The case of TFS Stores Ltd v Designer Retail Outlet Centres (Mansfield) General Partner Ltd and other companies [2021] EWCA Civ 688 looked at the term start dates that were inserted into six statutory declarations that related to six separate leases of retail units located across the country. The term start dates that were inserted are as follows:
| Lease | Term start date wording |
| Mansfield and Bridgend | “the Access Date under the Agreement for Lease pursuant to which the tenancy of the premises will be entered into”
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| Swindon | “a date to be agreed between the parties”
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| Ashford, Cheshire Oaks and York | “the date on which the tenancy is granted”
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The term start date wording will look very familiar to property industry people and to commercial property lawyers who are used to engaging with the contracting out process. Despite this, the tenant’s lawyers presented a bold argument that such wording was insufficient to ensure that the leases were validly contracted out, on the basis that it was too vague as it did not refer to specific calendar dates. The tenant was clearly very keen to remain in occupation, and request new leases, of the units.
In response, the landlords argued that it is generally not practical for a specific calendar date to be inserted as the term start date in a statutory declaration, which is why it is not common practice. For example, where an agreement for lease is being entered into by the parties to allow a tenant to carry out fit out works to a unit before the term starts, it is unlikely that the parties will be able to say with certainty when the works will finish, and in turn when the term will start. Even in a straightforward transaction, it can be difficult to pinpoint the exact date when the term will start, particularly if it is to coincide with completion of the lease and it is usually unclear when everybody will be ready to do that.
Lady Justice King, Lord Justice Males and Lord Justice Arnold in the Court of Appeal made a common-sense decision and ruled in favour of the landlords, upholding the earlier ruling of the High Court. They found that the term start dates that were inserted into the statutory declarations were sufficient, so the leases were validly contracted out. As Lord Justice Arnold elegantly put it, the term start date inserted into a statutory declaration is not “…an examination question which must be correctly answered by the tenant in order for the parties to achieve the contracting out…”
By denying permission to appeal, the Supreme Court has provided welcome certainty for landlords and tenants alike about how the term start date of a lease should be referred to in a statutory declaration so that the lease is validly contracted out. It is positive that the Court has endorsed established practice and that landlords and tenants retain the flexibility to agree the specific calendar date on which a term will start when it is practical and convenient for them to do so.
If you have any questions about the contracting out process and what it means for you, whether you are a landlord or a tenant, then please get in touch with our Real Estate team.
