Excluding security of tenure from a commercial lease
Since 2004, in order to exclude a lease of business premises from security of tenure under Part II of the Landlord and Tenant Act 1954, the landlord has had to serve a notice on the tenant warning them of the consequences of the lease being excluded and the tenant has had to make a declaration in the form or substantially in the form prescribed by the relevant regulations, the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, to the effect that he has received the notice and has accepted the consequences. Crucially the notice has to be given and the declaration made before the tenant becomes bound to enter into the lease.
Unfortunately, the draftsman of the 2003 Regulations chose to include in the prescribed form of declaration provision for the date of commencement of the lease to be stated, despite the fact that at the time that the declaration has to be made, that date will frequently not be known. Commonly, the term of a lease is expressed to run from the date of completion of the lease which won’t be known until the lease is actually completed. Similarly, if there is a prior agreement for lease conditional perhaps on the carrying out of works to the premises, the declaration has to be made before the agreement is entered into when again the commencement date of the lease will not be known, because it will depend on when the works are finished.
When the 2003 Regulations first came into force, there was a school of thought that the only safe course when the commencement date was not known was to leave that part of the declaration blank. The accepted practice today, however, is to fill it in with something descriptive of when the lease will commence such as “for a term commencing on the Access Date under the Agreement for Lease pursuant to which the tenancy of the premises will be entered into” or more simply “for a term commencing on a date to be agreed between the parties”.
There is a further technicality in that frequently a lease term is expressed to be calculated from a date prior to the lease being entered into, such as the last preceding quarter day, but as a matter of law the lease does not commence until actually completed. This has led some lawyers to try to cover the position by specifying both dates with such formulations as “for a term commencing on the date of completion of the lease but calculated from 25th March 2021”.
In the case of TFS Stores Limited v The Designer Retail Outlet Centres [2021] EWCA Civ 688, the Tenant TFS Stores Limited had entered into a number of leases apparently excluded from Part II of the 1954 Act. TFS Stores Limited were seeking to argue, however, that they had security of tenure and the leases were not in fact validly excluded from the Act because the declarations in question included such wording as I have set out above and did not give a specific commencement date.
In a remarkably common-sense judgement Lord Justice Males stated that the purpose of paragraph 1 of the declaration is to identify the lease in question. As long as it does that, it doesn’t matter that a specific commencement date is not given nor that the date specified is the date from which the term is calculated rather than the date on which it technically commences. The leases in question were therefore validly excluded from security of tenure.
If you heard a strange noise on 14th May, it was probably the collective sigh of relief from landlords and their advisors when the judgement was handed down.
For specific advice on any aspect of commercial property, please contact Ian Layzell-Smith on 020 7412 0050 or ian.layzell-smith@hunterslaw.com.
