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Issues surrounding the validity of the contracting out procedure have recently been brought into focus in the case of TFS Stores Limited v BMG (Ashford) Limited et al  EWHC 1363 (Ch).
Security of Tenure
The Landlord & Tenant Act 1954 (‘LTA 1954’) provides tenants of business premises with the right to remain in the premises after the expiry of the contractual term of the lease, subject to certain exceptions and the landlord’s right to object on limited grounds.
Since 1 June 2004, the landlord and tenant may contractually exclude this right in a two-stage process:
- the landlord serves a warning notice on the tenant which notifies the tenant that it is giving up its statutory right to security of tenure and compensation; and
- the tenant makes a declaration (either simple or statutory, depending on the timescale) confirming that it has received the landlord’s warning notice and accepts the consequence of giving up its rights.
A reference to the landlord’s warning notice and the tenant’s declaration must then be contained in or endorsed on the lease.
Contracting out is only possible where the tenancy is for a fixed term of more than six months, unless the tenancy provides for renewing or extending the term beyond six months or the tenant has been in occupation for a period exceeding twelve months. The process must be completed before the parties enter into a tenancy or become contractually bound to do so.
TFS Stores Limited (the ‘Tenant’) v BMG (Ashford) Limited et al (the ‘Landlord’)  EWHC 1363 (Ch)
The Claim and Counterclaim
In this case, the Tenant (trading under the name ‘the Fragrance Shop’) argued that six of its leases at a number of outlet centres were protected by the 1954 Act despite warning notices being served and statutory declarations being made before entering into the relevant agreements for lease or leases.
When the Landlord demanded possession at the end of the contractual term, the Tenant argued that:
- Its solicitors had lacked authority to accept service of the respective warning notices on its behalf.
The Tenant’s solicitor confirmed by email to the Landlord’s solicitor that she could accept service of the warning notice on behalf of her client. The Tenant, however, later sought to argue that it had not authorised its solicitor to accept service of the warning notice and that the warning notice had therefore not been correctly served.
- A particular employee of the Tenant had lacked authority to make the statutory declarations.
The Tenant also argued that its property manager who made the statutory declarations was not duly authorised to do so.
The Tenant’s internal process was that its Chief Executive Officer would approve each transaction at the outset but the Tenant’s management team would then be responsible for implementing the strategy that the Chief Executive Officer had agreed and taking the deal to completion, including instructing solicitors. Once agreed, the leases were then passed to the Chief Executive Officer for signing on behalf of the Tenant.
In the evidence submitted to the Court, the property manager said that that he was aware that the protection of the LTA Act was excluded but that he did not fully understand what that meant.
- None of the statutory declarations identified the commencement date of the term.
In respect of two of the premises, the statutory declarations referred to the term “commencing on the Access Date” but the Access Date did not correspond with the commencement of the terms of the relevant leases. As such, the Tenant argued they were ambiguous.
The statutory declarations sworn in respect of the other premises stated that the term was to commence on a date to be agreed or on the date on which the tenancy was granted and therefore did not provide a means of identifying the calendar date.
The Landlord counterclaimed that it was entitled to claim against the Tenant double the yearly value of the premises during the period of ‘holding over’ following expiry of the leases, pursuant to the Landlord and Tenant Act 1730.
His Honour Judge Davis-White QC dismissed the claim on 4 June 2019:
- He was entirely satisfied that there was actual authority given to the Tenant’s solicitors to accept service of the relevant warning notices. Notwithstanding that many of the Tenant’s solicitors’ physical files relating to the matter had since been destroyed, the Tenant’s solicitors’ authority flowed from their instructions to bring to completion a transaction reflecting the heads of terms.
- The Tenant had actual authority to execute the statutory declarations. There was no evidence that the Tenant’s Chief Executive Officer had limited the Tenant’s general authority or that the execution of a statutory declaration was something that the Tenant was specifically not authorised to do.
- The purpose of setting out the commencement date in a statutory declaration is to identify the tenancy in respect of which the warning notice has been given so that the tenant confirms, by the statutory declaration, that he or she understands that that proposed tenancy will be excluded from the protection of the LTA 1954.
The counterclaim was also dismissed. The Landlord was not entitled under the Landlord and Tenant Act 1730 to claim double the annual value of premises from the Tenant. To be wilful, the holding over had to be more than merely deliberate – there had to be an intention to stay on in the premises knowing there was no right to do so. The Tenant’s holding over had not been wilful.
The case serves as a useful reminder of the need to take care in excluding the Tenant’s statutory right to security of tenure and highlights the importance of validly serving warning notices and making statutory declarations:
- Although the Court was satisfied that the Tenant’s solicitors’ authority to accept service of the relevant warning notices flowed from their instructions to bring to completion a transaction reflecting the heads of terms, written confirmation of such authority from the Tenant to its solicitor would have negated this argument; it is always advisable to obtain such authority;
- When considering service of the warning notice from the landlord’s perspective, if the tenant is a registered company, it is often advisable to serve the warning notice on the tenant’s registered office by recorded delivery in addition to serving it on the tenant’s representative or solicitors;
- When serving the warning notice via email, written confirmation should always be obtained from the tenant’s solicitors that they are authorised to accept service via email;
- Where a landlord has dealt in good faith with the tenant’s employees who have conducted the negotiation and grant of the lease, it will be difficult for a tenant to assert an absence of authority within its own company or organisation. This is in part attributable to the fact the declaration itself includes a statement that the person swearing the declaration is duly authorised to do so; and
- Although a declaration which identifies the term as commencing on a date to be agreed or on the date on which the tenancy is granted does not provide a means of identifying the calendar date, the formulae used will not in itself invalidate a declaration. The reference to the commencement date in the declaration need not be specific but must indicate that the tenant understands that the proposed tenancy will be excluded from the protection of the LTA 1954.
His Honour Judge Davis-White QC cautioned, “As the facts of this case show, whatever steps are required to be taken, it is not possible to ensure that an individual will not simply sign a document put in front of him or her without properly reading it or understanding it.”
Amelia Newman is a solicitor in the Real Estate team at Ashfords LLP, advising clients on a range of commercial property matters including estate management, commercial acquisitions and disposals and development. For further information please contact Amelia on email@example.com.