Contracting out of the 1954 Act: Common sense prevails
TFS Stores Ltd v BMG (Ashford) Ltd et al [2021] EWCA Civ 688
When filling the declaration or statutory declaration it is not necessary to agonise over an exam style question as to what the term commencement date may be
Judgment has been handed down by the Court of Appeal in an important decision under the 1954 Act dismissing the tenant’s appeal regarding the contracting out procedure under s.38A of the Landlord and Tenant Act 1954, and Schedule 2 of the Regulatory Reform (Business Tenancies) Order 2003. This decision will now be the first port of call for anyone concerned with the validity or purpose of the declaration/statutory declaration that the tenant needs to complete.
The issue before the Court revisited the declaration or statutory declaration a tenant must execute on receipt of a warning notice that the protection of the Act will not apply, in order to render such an agreement valid, and specifically what the tenant is required to insert after the words “for a term commencing on…”.
This is a practical question of significant importance to practitioners because as anyone who has been involved in any conveyancing transaction will understand the vagaries of the process, and how often completion deadlines can slip or conditional dates for term commencement can be missed. It is very difficult to know with certainty, in advance, the exact date on which a lease will be executed, and it is common practice to use wording that refers to the commencement date of the term contained in the lease, or some other formula. Indeed, in this case the wording in some of the statutory declarations were even less specific – some said “…for a term commencing on the date on which the tenancy is granted”, and one even said “for a term commencing on a date to be agreed by the parties”.
The tenant asserted (as it did below) that in order for such a declaration to be valid the commencement date specified by the tenant must be the actual date of the grant of the lease – i.e. the date upon which its legal interest comes into existence – as opposed to the date on which the contractual term of the lease is expressed to commence (which can pre or post-date the actual date of execution). It supported its contention by claiming that Parliament had wider purposes in mind when prescribing this form of wording other than simply ensuring that the tenant had properly understood that it was agreeing not to have the protection of the Act e.g. to allow the tenant to reflect on whether what it was being offered was a “term of years certain”.
For the landlord it was argued that this was an unreal suggestion, and the simple practical purpose of the contracting out procedure is to make sure that the landlord has provided a proper warning to the tenant, and the tenant has properly reflected on that warning and understood it. The only purpose served by the declaration referring the names of the parties, the premises and the commencement date is as a simple check that the tenant understands, for itself, what lease is being referred to. For that purpose to be achieved it matters not whether the date it inserts in the declaration it is making (to itself) is the date of grant, or the commencement date of the term, or even other formula such as “on a date to be agreed”.
It was also argued by the landlords that the tenant’s suggestion would create a trap for the landlord whereby the process for contracting out was put at risk of being sabotaged, inadvertently or deliberately, by a tenant inserting a date that it could not know in advance with absolute certainty would be the date on which the lease would actually be granted. Furthermore, the statutory declaration is valid even if it only “substantially in the form” prescribed, which allows for a sensible degree of latitude as to the details that may suffice for the declaration to serve its purpose.
The Court of Appeal was unanimous in dismissing the tenant’s appeal. Giving the leading judgment of the Court Lord Justice Males stated:
The essential purposes of the declaration as a whole are clear. They are that the tenant should acknowledge (1) that the proposed lease excludes the security of tenure provisions of the 1954 Act, (2) that the landlord has served a Warning Notice in proper form, and (3) that the tenant has read the Warning Notice and accepts the consequences of entering into the lease. These matters, which are the substance of the declaration, are dealt with in paragraphs 2 to 4. Paragraph 1 of the declaration serves to identify the lease by stating the name of the tenant, the address of the premises (which, perhaps surprisingly, need not be mentioned in the Warning Notice) and the date on which the term will commence. If in the circumstances the way in which paragraph 1 as a whole is completed leaves no room for doubt as to the lease which is the subject of the declaration, its essential purpose has in my judgment been fulfilled.
…
I see no reason why the declaration should not be completed by inserting a formula (such as “from the Access Date…”) or even by words such as “from a date to be agreed”, provided that the declaration read as a whole is sufficient to identify the lease in question. Some such formula may be necessary if the date of the lease (or agreement for lease) is not known in advance. On the other hand, the date (or event) from which the term is to be calculated may well be known.
Lord Justice Arnold added:
In short, there is no good reason to treat the “for a term commencing on …” section of the prescribed form of declaration as an examination question which must be correctly answered by the tenant in order for the parties to achieve the contracting out from Part II of the 1954 Act that they have agreed.
And Lady Justice King summed it up as follows:
The substance of the statutory declaration is found at paragraphs 2, 3 and 4 of the form, namely that the landlord has served the Warning Notice on the proposed tenant who has read it and accepts the consequences of entering into the agreement, that is to say that they will not have security of tenure.
The body of the statutory declaration could not be clearer as a means of reinforcing the purpose of the changes to the Act namely to “to make the renewal or termination of business tenancies quicker, easier, fairer and cheaper” whilst giving the proposed tenant appropriate protection. The form of words inserted after “for a term commencing on…” has no impact upon the expressed objective of the statutory declaration.
The declaration is required to be “in the form or substantially in the form,” that leeway in my judgment comfortably allows, in respect of the words “for a term commencing on…”, for it to be completed in such a way as to take into account the many variables intrinsic in negotiations which eventually conclude in the granting of a business lease as well as the vicissitudes of conveyancing. 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.
The appeal by the tenant against the decision of HHJ Davis-White QC had been slated to be heard on 24 June 2020, but was adjourned on the basis of 2:1 decision of the Court of Appeal on the meaning and effect of PD51Z (see Scope of CPR PD51Z extends beyond CPR Part 55 ). That meant that practitioners have had to wait almost another year for the reassurance this decision offers.
A copy of the judgment can be found here.
Joanne Wicks QC and Mark Galtrey appeared on behalf of the tenant.
Wayne Clark and Joe Ollech appeared on behalf of the landlords.
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