Contracting Out Of Security Of Tenure – Can Tenants Have Their Cake And Eat It Too?

The recent High Court decision in TFS Stores Limited v BMG (Ashford) Limited et al [2019] EWHC 1363 (Ch) is an important decision dealing with the contracting out procedures under Section 38A of the Landlord and Tenant Act 1954 (1954 Act) and Schedule2 of the Regulatory Reform (Business Tenancies) Order 2003 (2003 Order).

Background and facts

The Fragrance Shop (TFS), a large perfume retail operator with over 200 stores nationally, entered into leases at six designer retail outlet centres and in each case the contracting out procedure was followed. Following the expiry of the leases, and the landlord's decision not to renew but to let the stores to a rival perfume retailer, TFS sought to establish that the six leases were protected by the 1954 Act.

The contracting out procedure

Unless a commercial lease is contracted out, the 1954 Act serves to protect the tenant's right to remain in occupation of the premises and its right to the grant of a new lease following the expiry of its existing lease.

The parties can agree that this protection is waived prior to the grant of a lease provided the following steps are taken:

The landlord serves a warning notice explaining the tenant's rights that are being waived; The tenant makes a declaration to acknowledge that it understands the consequences of contracting out; and The lease includes an endorsement referring to the landlord's notice and the tenant's declaration and the parties' agreement that the relevant provisions of the 1954 Act are to be excluded from the lease. Issues raised by TFS

The court firstly considered arguments concerning the alleged absence of authority of the tenant's solicitor and the tenant's retail director, as agents, to receive the warning notices and/or to make the declarations and secondly, the alleged defective wording in the statutory declarations due to the failure to include a fixed date for the grant of the lease.

The court considered the law of express and implied actual authority, ostensible authority and the imputation of knowledge via an agent, in order to answer the following two questions:

Did the tenant's solicitors have authority to receive the warning notices as the tenant's agent? Did the person who made the declaration in each case have the authority to do so? The judge held that the tenant's solicitors had actual authority to accept service of the warning notices on the basis that this formed part of their instructions to complete the transaction in...