Contracting out update following Supreme Court refusal

The Supreme Court refuses to re-open lease contracting-out issues previously determined by the Court of Appeal.

The Supreme Court has denied the Fragrance Shop’s request for leave to appeal the Court of Appeal’s decision in TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) General Partner Ltd [2021] EWCA Civ 688.

The decision marks the end of the road in terms of legal routes of appeal and provides much needed clarity for practitioners in respect of the contracting out process under the Landlord and Tenant Act 1954.

The two issues at the heart of the appeal to the Supreme Court were: (i) whether service of a warning notice on a tenant’s agent is good service (the service point); and (ii) whether it is sufficient to use descriptive wording to indicate when the lease will start when completing the blanks in the prescribed form of simple or statutory declaration required by Part II of the Act and Schedule 2 of the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 (the declaration point).

On the declaration point, the Supreme Court’s refusal of permission means that the Court of Appeal’s view, that a declaration will serve its functional purpose so long as it sufficiently identifies the lease that is being contracted out, stands.

Practitioners will no doubt derive comfort from knowing that it is not necessary to try and specify the exact date of lease completion after the words “for a term commencing on…” in the simple or statutory declaration and that the use of descriptive wording or a formula is fine - the purpose of including details of the term commencement date being to further assist in identifying the lease that is to be contracted out and nothing more.

As for the service point, the Supreme Court’s dismissal means that the Court of Appeal’s decision in Galinski v McHugh [1989] 57 P&CR 359, which is authority for the proposition that service can ordinarily be effected by and on agents, remains good law.

Given that contracting out is frequently undertaken at the eleventh hour, on tenants which are corporate bodies and often based outside of the jurisdiction, this decision confirms that the current industry practice of effecting service on duly authorised solicitors is sound.

Shoosmiths property litigation partner, Kate McCall, who acted for the consortium of landlords throughout the four-year litigation, commented:

“This is a victory for common sense. Had the tenant succeeded with its arguments, the viability of hundreds of thousands of leases contracted out since 2003 would have been called into question.

“These leases may have ended up having security of tenure, against the parties’ intentions at the time and against Parliament’s intended outcomes where the statutory procedure for contracting out had diligently been followed.”