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TFS Stores Limited v BMG (Ashford) Limited et al [2019] EWHC 1363 (Ch)

Earlier this month an important decision was handed down by the High Court in relation to the contracting out procedures for business tenancies under the Landlord and Tenant Act 1954 (the Act). The decision is good news for Landlord’s and reinforces the current market practice for contracting out.

Facts

TFS Stores Limited (TFS), who trade as The Fragrance Shop, has over 200 stores in the UK. The Landlords of six of the stores decided not to renew their (contracted out) leases. In the case, TFS tried to argue that the leases had not been validly contracted out of the Act. Their main arguments included;

  • The solicitor acting on behalf of TFS did not have authority to accept service of the 1954 Act Notice required as part of the contracting out procedure;
  • The authorised signatory who made the Statutory Declarations did not have the authority of the company to do so;
  • The Statutory Declaration did not specify the start date of the lease.

‘Contracting out’

The Landlord and Tenant Act 1954 provides protection, known as security of tenure, to tenants of business premises, from being made to vacate the premises at the end of the lease term. Unless the lease is ‘contracted out’ of the relevant provisions of the Act, the tenant will have an automatic right to a new tenancy at the end of the term. It can be very difficult for landlords to evict tenants, who benefit from security of tenure, at the end of the term unless they can prove one of the 7 grounds within section 25 of the Act.

In order for a business lease to be contracted out, as well as including reference to the contracting out procedure in the lease document, one of the following procedures must be followed prior to completion of the lease;

  • If the relevant warning notice is served by the Landlord on the Tenant less than 14 days before the lease is completed, the Tenant must make a Statutory Declaration confirming that the relevant sections of the Act do not apply to the business tenancy (this must be declared before a commissioner for oaths or a solicitor); or
  • If the notice is served 14 days or more before the lease is completed, the tenant can make a simple declaration (which need not be declared before a commissioner for oaths or a solicitor).

The notices and Statutory Declarations must be in a prescribed form and care should be taken when serving notice/accepting declarations made by Tenants. In practice, many solicitors prefer to use Statutory Declarations in all instances given that notices should not be served until the Lease is in a final agreed format, which usually results in a short notice period prior to completion.

Decision

In relation to the authority of TFS’s solicitor to receive the warning notices, the judge was ‘entirely satisfied’ that there was actual authority to accept the warning notices, given that the solicitor had authority to ‘do everything necessary to bring the matter to completion’.

In relation to the second point, again, the judge was ‘wholly satisfied’ that the representative in question, Mr Thompson, (who was the retail director of the company) had actual authority to make the declarations and that the tenant’s solicitor made the representation that Mr Thompson had such authority, by providing the declarations signed by Mr Thompson to the Landlord’s solicitor, who then acted on this apparent authority.

In response to the ‘no fixed commencement date’ argument, the judge held that the lack of a specific date did not invalidate them. He stated that the purpose of including this in the declarations is simply to enable the lease in question to be identified. Wording such as “for a term commencing on a date to be agreed by the parties” and various other ‘formula’ were valid.

Implications

The court’s decision is important as it supports the current market practice in relation to the procedure for contracting out. It would be impractical if notices could not be served on the Tenant’s solicitor, although it could be argued that it would be good practice to ask the Tenant’s solicitor to confirm they have authority to accept service of the notice on behalf of their client to avoid any suggestion to the contrary. Similarly, it would be difficult and in some cases impossible, to get absolute confirmation that the individual executing the relevant declaration has authority of the tenant company to do so.

Perhaps most importantly, the decision will avoid the need to enter a specific start date in the declarations which, in most transactions would not be practical or possible at the time the declaration is made and would make completion of commercial leases very difficult for practitioners.

Luckily for Landlord’s, and their solicitors, the court in this instance took an unfavourable view of a Tenant trying to wriggle out of valid contracting out procedure.

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