Appeal court confirms validity of ‘contracting out’ statutory declaration

A commercial tenant, in a dispute involving several tenancies, had argued that the exact date must be included in the declaration signed by the tenant when contracting out of the legislation. However the appeal court, upholding a decision by the High Court, ruled that less specific wording, such as “the date on which the tenancy is granted” or “a date to be agreed between the parties” was sufficient for the purposes of the legislation.

Lady Justice King, one of the three appeal court judges, said that there was sufficient “leeway” in the statutory requirements to “comfortably allow” the wording used in the disputed tenancy agreements.

“To hold otherwise would introduce exactly the type of rigid technicality which the Law Commission and the House of Commons Regulatory Reform Committee sought to eradicate through the change in the law [introduced in 2004 following a review of the 1954 Act]”, she said.

The 1954 Act is the main piece of legislation governing commercial leases in England and Wales. The decision, which was delayed by almost a year due to the Covid-19 pandemic, had therefore been eagerly awaited by both landlords and tenants.

Among other things, the 1954 Act gives tenants the automatic right to a new lease, at market rent, on expiry of the existing lease, unless the landlord can oppose on certain statutory grounds such as redevelopment intentions, tenant fault or the landlord wishing to occupy the premises. The tenants would therefore have had this automatic right of renewal should the court have found that the wording used to contract out of the 1954 Act was insufficient.

A mechanism allowing a landlord and tenant to contract out of the security of tenure provisions without having to first obtain a court declaration was introduced in 2004. It is applicable to tenancies “for a term of years certain”, only where the tenant is served with a ‘warning notice’ “in the form, or substantially in the form, prescribed”. The tenant must then make either a simple or statutory declaration, depending on how far in advance of the entry into force of the lease it received the notice, that it has received the warning notice and accepts its consequences.

The tenant, a perfumes retailer with a number of shops in outlet shopping centres across England, had claimed that, without an exact date, the warning notices it received in respect of its various leases were invalid. It advanced a number of arguments, including one based on the difference between lease commencement ‘in point of computation’ and commencement ‘in point of interest’ – a distinction, in land law, which prevents the tenant being held liable for acts or omissions in breach of a lease which took place before the lease was executed, even where the term of the lease was backdated.

The landlords argued that requiring an exact date was too prescriptive, and went against the stated policy objectives of simplifying the contracting out procedure while ensuring that the tenant receives fair notice and accepts the consequences of entering into the agreement. They pointed out that, in reality, warning notices and statutory declarations are often given and made before the exact date that the lease will enter into force is known.

The Court of Appeal agreed with the landlords, after referring to both the legislative background and the actual wording of the 1954 Act as amended.

Lord Justice Males said: “[A] declaration will be ‘in the form or substantially in the form’ prescribed if the declaration as a whole fulfils all the essential purposes of the prescribed form and that, despite the use of apparently mandatory language, parliament is not to be taken to have insisted on an interpretation which is contrary to commercial sense”.

“It is relevant in this regard that the declaration is to be completed by the tenant, who is therefore responsible for deciding how to fill in the blanks in the form … When the landlord has done all that it is required to do by serving a warning notice in proper form, it is an unattractive submission on the part of a tenant to say that it has filled in the blanks in the declaration in a way which invalidated the parties’ agreement,” he said.

Reading the reference to “term commencing on” in the prescribed form that the declaration should require an exact date would “introduce undue technicality as well as leading to practical problems which parliament cannot have intended”, he said.