You see this with residential leases, and this is the equivalent principle for business premises, initially brought in after the Second World War and bomb-damaged property, causing a reduced stock of business properties and landlords starting to be picky 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 famous 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 more accessible 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, the tenant receives a formal notice about what rights they are about to give away under this exclusion—secondly, there is a formal agreement to this after some time.
You then need to mention correctly in the actual lease for it to happen automatically without needing any formal court agreement.
Regarding the practicalities of how you do this, here are five key steps to go through.
You 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 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 should 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 is 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 to be valid.
Depending upon the expected contracting-out time between the initial warning notice and the completed lease, it can take one of two forms.
If this period is over 14 days, then a ‘Simple Declaration’ will suffice as you’re allowing a minimum of 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 many 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.
Regarding what triggers this 14-day time frame, it is technically the time between the initial Warning Notice and the completed lease.
The Declaration acknowledges that this time frame has been noted. Although this Declaration could therefore fall within the 14 days on the basis that the initial Warning Notice is accepted 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 OK 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 the tenant to this.
Again, make sure this is correct 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 correct 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 proper clauses above, the main factor here is timing and ensuring that it is after the 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 excluded initially.
As no lease is officially holding over with any security of tenure, then as soon as a tenant continues with the 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 on ahead of time, and any vacation happens correctly and at the actual lease end timing.
Another point on 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 bypass 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 needs to be shorter, they will need another solicitor or commissioner to explain before they sign it all away.
Once this has been understood and you’re on the way to exclusion, make sure everything is administered correctly.
Any standard form you can locate must be carefully scrutinised to provide the correct detail and be served correctly.