Howzat?

The Court had to decide whether various leases were in or out of the security of tenure provisions of the Landlord and Tenant Act 1954. 

  • Submitted 27 June 2019
  • Applicable Law UK (England & Wales)
  • Topic Real Estate

This was an interesting case which looked at whether six leases to The Fragrance Shop (TFS) had been validly contracted out of the Landlord and Tenant Act 1954 (the 1954 Act). If the leases had been validly contracted out TFS would not have security of tenure at the end of the contractual lease terms. The Court also had to consider whether, if the leases were contracted out, TFS had to pay a penalty rent for occupation at the rate of double the yearly value of the land, payable under the Landlord and Tenant Act 1730, for the period when TFS had been in occupation after lease expiry.

Background and issues

TFS had 6 leases of shops at various McArthur Glen retail outlet centres. On lease expiry the landlord did not want to renew the TFS leases and it was TFS’s view that the landlord wished to let them to a competitor of TFS. TFS argued that the procedural requirements of the 1954 Act in relation to the contracting out of the leases had not been met. If TFS were correct the leases would be inside the protections of the 1954 Act, the leases would be continuing, and they would have, prima facie, a right to renew.

There were three issues before the Court (as well as the point on paying double the yearly value of the land if the leases were found to be contracted out):

  • whether the solicitors for the tenant, in the case of two of the tenancies, had authority, in each case, to accept service of a warning notice in relation to the contracting out procedure
  • whether a particular employee of the tenant who executed statutory declarations in relation to the same two tenancies, purportedly in compliance with the contracting out procedure, had authority to do so 
  • whether the relevant statutory declaration was validly completed as regards the description of the tenancy in question in the case of each of the six leases.

Outcome

The Court held that the leases had been validly excluded from the 1954 Act. Some points of note from the judgment are below:

Did TFS’s solicitors have authority to accept service of the warning notice?

It was held that, in this case, TFS’s solicitors had actual authority to accept service of the warning notices. The judge noting that the solicitors’ actual authority “flowed from their instructions to bring to completion a transaction reflecting the HOTs”. The HOTs stated that the leases were to be contracted out of the 1954 Act. Whilst it was acknowledged that the “fact that the agent thinks that he or she has authority is not of itself enough” in this case actual authority was established.

The judge also found there was apparent authority for TFS’s solicitors to accept service, noting that TFS’s solicitors were “instructed in the process of completing the legal formalities and bringing the transaction to completion. As such, it was held out as having authority to make representations as to the extent of its authority”. There had also been reliance by the landlords who had entered into the agreements for lease on this apparent authority and it was commented that to “hold otherwise would mean that solicitors who made representations that they had authority to accept service (whether or notices of proceedings) would not be capable of being relied on without some further evidence of authority from the client, which would be a great change in the manner in which matters customarily proceed at present.”

Did the TFS employee have authority to swear the statutory declaration?
The Court again found that in this case the TFS employee had actual authority to swear the declaration; the employee was retail director (although not a statutory director) and key point of contact (both in the negotiation of the HOTs and dealings generally). There was no evidence of any limit on his authority. It was also found that TFS’s solicitors had both actual and apparent authority to represent that the employee was authorised and that they made this representation by providing the statutory declarations.

Ratification and estoppel

The landlord also argued that any issues in relation to the contracting out process had been ratified by the execution of the leases. Although the judge was not required to consider this argument having found that the contracting out process had been followed, he did note that while there was no policy reason which would prevent retrospective ratification, it was not made out in this case. It was found that the chief executive officer of TFS did not fully understand the consequences of contracting out of the 1954 Act and could not be taken to have approved the procedure for contracting out or have known the material facts. Estopppel by deed was also not established. The judge noted that the fact that the giving of the warning notice and making of the declaration are recorded in the lease should not estop the tenant from taking any point about the validity of those documents. The judge noted that to do so “would in fact remove a key protection that the 2003 Order is supposed to confer”.

The wording used to describe the commencement date in the statutory declaration

The Court also had to consider whether the statutory declarations sworn as part of the contracting out process were defective. TFS argued the statutory declarations did not specify the commencement date of the proposed tenancy correctly. Different descriptions were used across the 6 statutory declarations to describe the term commencement, including some by reference to an “Access Date under the Agreement for Lease”. TFS argued the term can only commence with the grant of the lease. However, referring to Woodfall it was noted “a lease may commence at one day in point of computation, and at another in point of interest”. The judge commenting “It seems to me that using as the commencement date the date when the interest under the lease commences or the date from which the term is calculated are both adequate identifying badges of the prospective tenancy and whether or not one is formally correct and the other is not, use of the one that is not formally correct (if that is the position) would still involve the statutory declaration being “substantially” in the form of that set out in the 2003 Order”. Other statutory declarations referred to “a term commencing on a date to be agreed between the parties” or “for a term commencing on the date on which the tenancy is granted”. None of the descriptions provided for a fixed calendar date. However, the judge held that the statutory declarations were valid, finding that the purpose of the clause in the statutory declaration which refers to the commencement date of the tenancy is to identify the tenancy in respect of which the warning notice has been given, so that the tenant understands that the tenancy will not have the protection of the 1954 Act. Taken as a whole the statutory declarations identified the tenancies. Even if the term commencement date was “incorrect” or left blank the judge noted this would not necessarily prevent the statutory declaration being “substantially” in the form prescribed by the relevant legislation.

If an accurate fixed calendar date was held to be required the judge noted this “seems to me a recipe for confusion, uncertainty and the frustration of perfectly sensible commercial arrangements entered into between prospective landlords and tenants. It also seems to me a situation where, if this is indeed the position, commercial parties might well with justification say that the “law is an ass”. I do not consider that this does represent the law.”

Double the yearly value
The Landlord and Tenant Act 1730 provides that a landlord is entitled to double the annual value of the premises from a tenant “wilfully” holding over after the landlord has demanded, in writing, possession of the premises. Double value was not found to be payable in this case. “Wilful” holding over had to be more that deliberate, there had to be “an intention to stay on knowing that there is no right to do so.” It was held TFS advanced bona fide arguments in relation to their continued right to occupy and so the holding over was not wilful.

Comment

The case will come as a relief to both landlords and their lawyers and provides useful guidance as to practice and procedure. It also serves as a reminder that contracting out of the protections of the 1954 Act can carry very real consequences for a tenant and cause significant difficulties especially when commercial relations do not pan out as expected.

TFS Stores Ltd v Designer Retail Outlet Centres (Mansfield) General Partner Ltd/BMG (Ashford) Ltd v TFS Stores Ltd [2019] EWHC 1363 (Ch)

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