The High Court has handed down judgment in the recent case of TFS Stores Limited v BMG (Ashford) Limited and others concerning the contracting out procedure under the Landlord and Tenant Act 1954 (1954 Act).
The case involved the high street fragrance retailer, The Fragrance Shop (TFS), who sought to establish that six of its leases were protected by the security of tenure provisions contained in the 1954 Act despite the fact that the contracting out procedure had been followed so as to exclude the security of tenure provisions prior to either entering into agreements for lease or completing the leases themselves.
TFS’s landlord had taken the decision not to renew the six leases and to instead let the stores to The Perfume Shop, a direct competitor of TFS. TFS claimed that its leases had not been validly contracted out and that it was entitled to the grant of new leases of its premises.
Landlord and Tenant Act 1954
The 1954 Act gives security of tenure to tenants who occupy premises for business purposes. This means that, even though the fixed term of a lease has ended, tenants of business premises have the right to remain in occupation at the end of the contractual term and have the right to apply to court for the grant of a new lease.
The process for agreeing that this protection does not apply is referred to as "contracting out". In order to contract out of the relevant statutory provisions, a prescribed procedure must be followed whereby a warning notice must be served on the tenant by the landlord and a declaration must be made by or on behalf of the tenant.
The main legal issues to be decided by the court in this case were:
- Did the solicitors for TFS have authority to accept the warning notice under the contracting out procedure?
- Did a particular employee of the tenant have authority to make the declarations on behalf of TFS?
- Were the declarations valid as a fixed term commencement date was not stated?
On issue number 1, TFS argued that their solicitors did not have authority to accept service of the warning notices. However, the court held that the solicitors had actual authority to accept service of the relevant warning notices as a result of their instructions to bring to completion the transaction reflecting the heads of terms that referred to the leases being contracted out. TFS were therefore bound by the acts of its solicitors as having actual authority to act as they did.
On issue number 2, TFS argued that the employee who made the declarations on their behalf did not have the authority to do so. The employee was TFS's retail director (although not a statutory director). Again, the court disagreed and held that the retail director had actual authority to make the declarations. The retail director had responsibility for the negotiation of the leases and there was no evidence that the retail director’s authority to negotiate and complete the leases had been limited.
On issue number 3, TFS asserted that the declarations that had been made were defective and did not comply with the prescribed procedure on the basis that they failed to correctly specify the commencement date of the term of the proposed tenancies. However, the judge held that the wording used did not invalidate the declarations and the declarations met the legal requirements. It was, therefore, not necessary to specify the exact commencement date of the leases in the declarations.
In summary, the court concluded that the leases had been validly contracted out.
The decision comes as a relief for practitioners acting for landlords. The third issue itself was a question of significant practical importance as it is often impossible to know with certainty, in advance, the exact commencement date of a lease and it is common practice for an exact date not to be specified in the contracting out declaration. The case highlights the importance of ensuring that the correct procedures are followed to ensure the agreement to contract out of the 1954 Act is valid and effective.
For further information please contact Kenny Friday.