Our Commercial Property department, discusses the important decision of TFS Stores Limited v BMG (Ashford) Limited and others (2019) concerning the contracting out process under section 38A of the Landlord and Tenant Act 1954 (1954 Act).
Landlords and practitioners sigh in relief at the decision made in TFS Stores. This case involved a high street retailer – The Fragrance Shop (TFS) – who sought to establish that six of its leases were protected by the security of tenure provisions. What is security of tenure? This is essentially a right which allows a business tenant to remain in occupation of its rented premises at the end of its lease term – if the tenant wishes to do so. Landlords are only able to end that tenancy if they can prove that one or more of the grounds specified by the 1954 Act exists, such as:
- Breach by the tenant of a repairing obligation under the lease
- Persistent delay by the tenant in paying rent
- Other substantial breaches of obligations under the lease
- Availability of suitable alternative accommodation
- In the case of an underlease of part, possession is required for letting or disposing of the property as whole
- The landlord intends to demolish or reconstruct the premises or intends to carry out substantial work or construction on the premises and it could not reasonably do so without obtaining possession
It was certainly a desperate situation for TFS as it was about to be kicked out of the premises occupied by its landlord, even though TFS wanted to remain. The landlord argued that the prescribed warning notices and executed statutory declarations had been served and signed/sworn before any agreement for lease or lease and been entered into, so as to exclude the security of tenure and thus removing the right to automatically renew.
There were various issues raised by the tenant but one that could have quite a far-reaching affect across this area, in general, is the apparent ‘defective wording’ used in the statutory declaration. The particular point revolves around how the declarations referred to the commencement date for the lease term. The template declaration that the LTA 1954 provides for gives the phrase ‘I … propose to enter in a tenancy of premises…for a term commencing on[…]’ which is then filled in at the time the declaration is given.
The declaration that a tenant must give to confirm that the lease it will enter into will be outside the 1954 Act, must contain the commencement date of the lease term in order to be valid. But should this date be the actual date of the lease i.e. the date upon which the lease is completed or is it the date stated in the lease as to be the actual start date of the lease term? The two dates are not necessarily the same.
This is a difficult question to answer as it is very hard to know in advance the exact date on which a lease will be executed and, as stated above, the start of the lease term is not always the date that it is entered into. It is common practice to use wording that refers to the commencement date of the term contained in the lease. In TFS Stores, the wording used was even less specific ‘… for a term commencing on the date on which the tenancy is granted’. The wording in the warning notice served was more vague and said ‘for a term commencing on a date to be agreed by the parties’.
It was upheld that the wording used was valid. Why? Because the purpose of inserting such details into the statutory declaration is merely to make it as clear as possible that the tenant confirms that it understands that this lease, which it intends to accept, will be outside the 1954 Act protection. Basically, it is for identification purposes only.
This decision certainly reassures landlords – if the case had gone the other way then it would have made specifying a future date very difficult and in turn serving statutory declarations in advance very difficult, if not impossible. A case for a crystal ball maybe?
If you have any questions or would like to discuss any of the issues raised in this blog, please feel free to contact our Commercial Property team.