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Commercial Leases and Opting Out of Security of Tenure - Test Case Ruling

Commercial landlords and tenants may contract out of the security of tenure provisions of the Landlord and Tenant Act 1954, but only if certain conditions are met. One of those conditions came under close analysis by the Court of Appeal in a ruling that will be essential reading for property professionals.

The case concerned six fixed-term leases entered into by a retailer with various linked landlords. In accordance with the Act, warning notices were served on the tenant, giving notice that the leases would not provide security of tenure. The Act required the tenant, in each case, to submit a declaration that it had received the warning and understood its consequences.

The declarations had to be 'in the form, or substantially in the form' required by the Act. They were variously expressed, but none of them stated the precise date on which the leases would commence. Some of them stated that the lease would start on a date to be agreed, others that the commencement date would be that on which the tenancy was granted or access to the premises given.

The tenant argued that the declarations did not conform to the requirements of the Act and that it therefore enjoyed security of tenure in each case. Those arguments failed to persuade a judge, who ruled that the declarations achieved their statutory purpose and were effective to exclude the leases from the protection of the security of tenure provisions.

Dismissing the tenant's appeal against that outcome, the Court noted that it was the tenant's responsibility to complete the declarations. It was an unattractive argument on the part of the tenant to say that it had done so in a way that invalidated the parties' agreement to contract out of the security of tenure provisions.

The tenant's arguments, if correct, would introduce undue technicality to the process and result in practical problems that Parliament could not have intended. It would, amongst other things, be open to a tenant to deliberately sabotage a declaration by inserting the wrong commencement date, thus rendering it invalid.

The declarations submitted by the tenant fulfilled the statutory purpose in that they identified the relevant leases beyond doubt and stated that, after reading the warnings, the tenant understood and accepted their consequences. The declarations were in the form, or substantially in the form, prescribed and were thus effective to contract out of the protection provided by the Act.