You see this with residential leases, and this is the equivalent principle for business premises, originally brought in after the Second World War and bomb-damaged property causing a reduced stock of business properties and landlords starting to be choosy about what tenants could stay on.
Well, nowadays you can exclude the whole legislation right from the start. This benefits a landlord most, having more flexibility at the end of a lease, and has become popular for mainstream lettings where tenants tend to be more mobile and clued-up on matters anyway.
Originally you had to apply to the court for a specific lease to be outside this protection, but from 2004 things got easier by additional legislation called The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003.
In terms of how this contracting-out procedure is implemented, there are two basic principles; firstly that the tenant receives a formal notice about what rights they are about to give away under this exclusion. Secondly, a formal agreement to this after a period of time.
You then need to mention correctly in the actual lease, in order for it to happen automatically without needing any formal court agreement.
Regarding the practicalities of how you do this, here are 5 key steps to go through.
You do have to be careful that these are correctly implemented so that there is no wriggle-room for a tenant (or landlord) to argue afterwards that this exclusion is not valid. Therefore the usual benefits of the Landlord & Tenant Act 1954 still apply.
For some landlords with multiple tenant scenarios, it’s even worth some initial advice, templates, and procedures being confirmed by a solicitor which a landlord can then practically administer and implement themselves afterwards.
Therefore, here are the five key factors to 'contract out' of a commercial property lease from the provisions of the Landlord & Tenant Act 1954 in order to eliminate security of tenure:
1. The Landlords ‘Warning Notice’
The landlord needs to issue a formal notice to the tenant, warning them about what they are about to do.
It’s within a standard form in the original regulations, and issued before any actual lease or agreement for lease is entered into in this or a substantially similar form (you can purchase one here and see a sample here).
So you may have reached the stage in the procedure of a draft lease being agreed and in circulation, but this can’t have been signed and completed in any way before this notice has been issued and the procedure has gone through.
In short, this notice will formally notify the tenant that they’re about to give up the security of tenure and rights at the end of this agreed lease, and therefore advise them that they take professional advice in the matter.
Although it is a standard notice, you need to ensure that it is addressed to the actual tenant’s name and location, and then correctly served upon them.
The importance of getting this right can’t be stressed enough. The notice has not only got to be technically accurate but then correctly issued and received by the tenant.
Failing this, they could claim it is invalid, and therefore the whole exclusion process void, and the Landlord & Tenant Act 1954 back to being applicable.
2. The Two Types of Tenant ‘Declaration’
The tenant then has to formally reply to this ‘warning notice’ and accept the situation of all rights being excluded from the lease.
As with the Warning Notice, this declaration of response is in a prescribed form and must have all the correct information on in order to be valid.
It can take one of two forms, depending upon the expected contracting-out time between the initial warning notice and the final completed lease.
If this period is over 14 days, then a ‘Simple Declaration’ will suffice as you’re allowing a minimum two weeks for the tenants to make a reasoned decision (you can purchase one here and see a sample here).
If you want to push things through in under 14 days, which can be the case in a lot of sudden renewals or lettings, then a ‘Statutory Declaration’ is required (you can purchase one here and see a sample here).
Not only is this Statutory Declaration in a different form, but you will need the tenant to sign this in front of another independent solicitor or commissioner for a small charge, to ensure that they understand what they are doing.
In terms of what triggers this 14-day time frame, it is technically the time between the initial Warning Notice and completed lease.
The Declaration acknowledges that this time frame has been noted. Although this Declaration could therefore fall within the 14-day period on the basis that the initial Warning Notice is acknowledged outside the period, the best way is to ensure that both are agreed, signed, and noted well within the time frame.
Also, make sure you plan around the receipt dates rather than just the service dates, to leave no room for the parties claiming afterwards that things were not correctly issued and received in time.
If you go down this Statutory Declaration route but find it taking longer than 14 days, then it’s fine to continue with it rather than having to resort to a Simple Declaration.
3. The Lease Clause
There needs to be a clause in the actual lease referring to this exclusion process, again a standard piece of wording referring to the original landlord’s Warning Notice, the actual Declaration afterwards and whether this was Simple or Statutory, and the ultimate agreement of the tenant to this.
Again, make sure this is correct in order to provide no room for claiming invalid afterwards.
4. The Lease Completion
Usual lease-completion principles then apply for arranging the lease to formally be agreed with the right signatures and dates not only on the lease generally but also that the above 'exclusion clause' also has a date inserted for the completed Declaration.
With the correct clauses as above, the main factor here is timing and ensuring that it is after the above Warning Notice and Declaration notice periods.
5. The Lease End
A final point is actually right at the end of the agreed lease, which because it seems long into the future at the time of agreeing to the lease, can later crop-up with problems at the end because people forget that this is an ‘excluded lease’.
Therefore, quickly agree to a new form of lease straight afterwards; otherwise, you’re in the realm of another lease being implied which over time could bring back the Landlord & Tenant Act 1954 Act rights that you originally excluded.
As no lease is officially holding over with any security of tenure, then as soon as a tenant continues with business occupation of a property and pays rent over a period of time, usual 1954-Act tenancy rights can be inherited.
So diarise this carefully, and make sure that a new renewal lease is agreed ahead of time, and any vacation happens correctly and at the actual lease end timing.
Another point on the subject of leases ending is if they are mutually agreed to be surrendered by both the landlord and tenant before the natural lease end date.
If this is directly through a Deed of Surrender then no problem, but if the 1954 Act already protects the lease and you agree to an initial Agreement to Surrender, then a similar contracting-out process will be required.
Applying the 5 Steps
Following these five steps will enable you to by-pass the whole Landlord & Tenant Act 1954 protection in any new lease, which can mean fewer complications for both a landlord and tenant in the process of wanting to agree to new leases.
However, the detail needs to be watched. Because the tenant is giving up a whole array of legal rights, which they may live to regret, the process is deliberately giving them space to consider things. If this 14 day period does need to be shorter, they will need another solicitor or commissioner with them to explain before they sign it all away.
Once this has been understood and you’re on the way to exclusion, then make sure everything is administered correctly.
Any standard form you can locate must be carefully scrutinised to provide just the right detail and to be served correctly.
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