Property Law uk

Maintained by Gary Webber

Contracting out

This page contains cases that deal with both the old and the new contracting out regimes:
  • Must be a term certain.
  • Simple and statutory declarations.
  • Changing the terms - introducing a break clause.
  • Change in the parties.

Term certain

London Borough of Newham v Thomas-Van Staden
[2008] EWCA Civ 1414

Summary

Prior to the reforms to Part II of the 1954 Act made in June 2004 a lease could only be contracted out of the security of tenure provisions of sections 24 to 28 by court order. Then (as now under the new regime) a tenancy could only be contracted out if the tenancy was to be granted "for a term of years certain". If, on a proper construction, the lease is not for a fixed term the tenant will be entitled to remain in occupation with the full protection of the 1954 Act. That is what happened in this case.

Facts

In this case, the lease was granted for a term "from and including [1 January 2003] to [28 September 2004] (Hereinafter called 'the term' which expression shall include any period of holding over or extension of it whether by statute of at common law or by agreement". A court order was obtained authorising the contracting out of the tenancy.

After the initial fixed period had passed the tenant remained in possession paying rent (albeit irregularly). The landlord subsequently wanted possession in order to carry out a redevelopment (starting in January 2009) and served a notice terminating the continuing tenancy (pursuant to a term in the lease). The tenant refused to leave.

Held

On a true construction of the lease, the term was not for "a term of years certain". It could not therefore be excluded from the provisions of ss 24 to 28; the court order was a nullity and the landlord was not entitled to possession.

Comment

An expensive mistake! There will still be many leases that have been contracted out under the old regime, or at least purportedly so. In this case the landlord wanted to redevelop the property. That is of course a ground for terminating a business tenancy under s30(1)(f) but if the landlord still wanted to go ahead it will have been necessary to serve a s25 notice and prove the ground etc.


Simple and statutory declarations

Using the statutory declaration when you should have used the simple one

The Chiltern Railway Company Ltd v Patel
[2008] EWCA Civ 178

Summary

Where a notice informing the prospective T that the lease is to be contracted out of Part II of the 1954 Act is served more than 14 days before the lease is entered into para 3 of Schedule 2 to the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 says that the tenant (or duly authorised person) "must" sign a simple declaration. However, if he in fact signs a statutory declaration that will still be effective.

Key facts
  • On 3 August 2004 L served notices in correct form telling T that the two leases to be entered into were going to be contracted out.
  • On 10 March 2005 T made a statutory declaration in respect of each lease.
  • On 15 March 2005 L granted T leases of two shops. The notice was therefore served long before the the fourteen day period referred to in paragraph 2 of the 2003 Reform Order for service of the notice.
Citations

Lord Neuberger sitting in the Court of appeal at para 11:
    "It would .. be 'bordering on the absurd' if a statutory declaration was held to be ineffective on the grounds that it differed from the prescribed form because a) it was both expressly and in law in a more solemn form than that form; and b) although it stated that notice was served before the lease was entered into, it did not state that it was served more than fourteen days before the lease was entered into."
At para 13:
    "It is clear that on the facts of this case that paragraph 3, and not paragraph 4, applied. However, the requirement of paragraph 3 is not that a declaration must be 'in the form set out in paragraph 7,' but that it must be 'in the form or substantially in the form set out in paragraph 7'. Accordingly, the first issue is whether the statutory declaration in paragraph 8, as used in this case, is substantially in the form of the declaration in paragraph 7. ..Despite the submissions to the contrary on behalf of Mrs Patel, I find it quite impossible to accept that the differences between the two documents justify the conclusion that a paragraph 8 statutory declaration is not 'substantially in the form' of the paragraph 7 declaration ... Accordingly, it appears to me that the paragraph 8 statutory declaration is in the same form as the paragraph 7 declaration, save in the arid sense, that the wrong form of declaration was used, but that is precisely catered for by the words 'or substantially in the form' in paragraph 3."
Further at para 21:
    "Mr Winter [for the landlord] also made the valid practical point that, when the notice is served, in many cases the parties may not know whether or not the tenant will in fact be committed to the lease in the next fourteen days, either because the precise date of service of the notice on the tenant may not be known to the landlord or, even where it is known, neither party may know precisely when they would be committed to the lease. It could therefore represent something of an unfair trap, particularly for a landlord, if the parties were required to use a paragraph 7 form, and could not use a paragraph 8 form, in a case to which paragraph 3 applied. It would lead to practical difficulties, such as either preventing the parties from entering into the lease when they wanted to, having to delay for fourteen days, or the tenant being put to the rather absurd expense of having to execute a paragraph 7 declaration and a paragraph 8 statutory declaration, to wait to see whether more than fourteen days elapsed between the service of the notice and the tenant being committed to the lease."
However, the converse is not the case. If a statutory declaration should be used a simple declaration will not be good enough. See Lord Neuberger at para 18 and Arden LJ at para 26.


Old regime

Different terms - inclusion of break clause

Receiver for Metropolitan Police v Palacegate Properties Ltd
9 February 2000

Introduction

In its old form s38(4) of the 1954 Act stated as follows
    "The court may-

      (a) on the joint application of the persons who will be the landlord and the tenant in relation to a tenancy to be granted for a term of years certain which will be a tenancy to which this Part of this Act applies, authorise an agreement excluding in relation to that tenancy the provisions of sections 24 to 28 of this Act."
T argued that s38 did not apply because:
  • The rent term was different payable annually in arrears on the draft - payable quarterly in advance on the final document.

  • There was a break clause therefore the lease was not for a term certain
Decision
  • The purpose of the section is to ensure that the tenant understands what he is giving up in terms of security under the Act.
  • The terms of the final lease must be substantially similar to that which was before the court.
  • Whether rent was payable annually in arrears or quarterly in advance was irrelevant. It had no bearing on security.
  • The break clause did not prevent the lease from being for a term of years certain for the purposes of s38(4).
Citation

    "The purpose of section 38(4)(a) is to enable a court to satisfy itself that the prospective tenant understands that he is foregoing the protection of section 24 to 28 of the Act. However, effect must be given to the words in relation to that tenancy in the subsection. I do not consider that a section that provides an agreement to waive protection needs the sanction of the court gives a green light to a landlord to make wholesale changes to the draft tenancy submitted to the court when approval was sought. The words that tenancy in section 38(4)(a) require its terms to bear a substantial similarity to that before the court when authority was given. In particular, changes material to the need for protection may nullify the authority granted. For example, the length of the term would be a material consideration in the case of a lease that contemplated substantial capital expenditure by the tenant."
Different parties

Brighton and Hove City Council v Collinson
[2004] EWCA Civ 678

Facts

The lease was to be granted to a company controlled by two brothers who were directors. The application named the company and the brothers as respondents. The draft lease that was attached named the company as tenant and the brothers as guarantors. After the order was made authorising exclusion of the security provisions from a lease to the respondents the brothers requested that the lease be granted to them personally, and not to the company. L agreed and the lease was so granted.

Held

There was no reason why an application under s38 could not be made by all the parties who might be the landlord or the tenant. The brothers were party to the application and the lease was granted to them. The fact that they were not named as parties to the lease on the draft attached to the application did not matter. The important thing was that the prospective tenant should understand that he was foregoing the security protection afforded by the Act. The lease granted was substantially similar to that authorised by the court. The court order was the governing document, not the draft lease. An overly technical view should not be taken of the rules; and one should look at the purpose of the system when deciding whether or not it has been carried out defectively.


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