High Court brings clarity over ‘contracting out’ of leases in statutory declarations

The court ruled that the commencement date of a lease specified in a declaration used to ‘contract out’ of the Landlord and Tenant Act of 1954 need not be the date on which the lease actually completes. Instead, less specific wording such as “on a date to be agreed by the parties” is enough to validly contract the lease out of the legislation.

A statutory declaration needs to be sworn before the parties are contractually bound to take the lease, and the statutory declaration needs to be sworn before an independent solicitor. Debate had arisen over whether a declaration using unspecific wording would be valid, as the precise completion date of a lease may well not be known when the declaration is sworn.

The High Court, ruling in a dispute relating to several tenancies, decided that a number of leases which did not specify exact completion dates were valid. The judge said the purpose of including less specific wording in the statutory declaration was so that the tenant confirmed, through the statutory declaration, that the tenancy would be excluded from the 1954 Act’s protection.

The court rejected the tenant’s argument that the commencement date is a key fact for the tenant to know, at the date they swear the statutory declaration. The judge pointed out that in practice this might lead to the commencement date having to be guessed at, because some leases are triggered by the happening of a certain event, such as certain works being completed.

“This seems to me a recipe for confusion, uncertainty and the frustration of perfectly sensible commercial arrangements,” said Judge Davis-White QC.

“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,” said the judge.

Property dispute expert Ian Morgan of Pinsent Masons, the law firm behind Out-Law.com, said the judgment would come as relief to many legal practitioners as it validated common practice.

“Although the current procedure for contracting out business tenancies has been in existence for nearly two decades, there was some residual uncertainty around the operation of the contracting out provisions,” Morgan said.

“Had the judge found that the actual commencement date of a lease needed to be specified in the statutory declaration, this might have opened the floodgates to claims by thousands of tenants whose statutory declarations contain similar wording,” Morgan said.

The judge said that endorsing details of the warning notices and statutory declarations in the leases did not in and of itself create an ‘estoppel’ preventing the validity of the contracting out process from being called into question – although he did not need to decide on the point.

“Although in this case the contracting out procedure was found to be valid, and in spite of the good sprinkling of common sense exhibited by the court in order to validate modern conveyancing practice, the fact that the tenant’s estoppel argument, had the court been required to decide it, would have failed is an important reminder of the limits of even the most sympathetic of court’s ability to assist a party which bungles a contracting out process. It remains the case that the contracting out process must be followed strictly,” Morgan said.

“The case does seem to leave open at least the technical possibility that a tenant could be found to have ratified an invalid contracting out process, but, as in this case, providing the evidence to satisfy the necessary legal test in practice would be a very high, if not insurmountable, hurdle indeed. It will be interesting to see whether and to what extent parties will seize upon this possibility in future cases in an attempt to save invalid contracting out processes,” Morgan said.

For solicitors the judgment confirms that they do not necessarily need express written authority to accept service of contracting out ‘warning notices’ on behalf of their clients. In the case in question, the solicitor’s authority to accept service of the notice flowed from her instructions to bring the transaction to completion.