The contracting-out regime for business leases enables parties to enter into agreements to exclude their leases from the protection of the Landlord and Tenant Act 1954. However, only fixed-term leases can be excluded. In other words, periodic tenancies and leases for a fixed term that are expressed to continue after the expiry of the initial term, until determined by notice, cannot be excluded.
Newham London Borough Council v Thomas-Van Staden [2008] EWCA Civ 1414; [2008] PLSCS 358 is a worrying decision concerning the effect of a drafting error in a lease. The landlord had granted its tenant a lease for a term beginning on 1 January 2003 and ending on 28 September 2004. The lease defined this period as “the term, which expression shall include any period of holding over or extension of it whether by statute or at common law or by agreement”.
The landlord argued that the words of extension were “meaningless surplusage”, which, read in the context of the lease as a whole, were inconsistent. However, the Court of Appeal ruled that it must attribute a meaning to the words because they formed part of the lease. It ruled that the lease created a tenancy for a term of years certain until 28 September 2004 and, by the words of extension, any further period of holding over or extension.
Consequently, the lease was not for a “term of years certain”, as required by the legislation, because the term had been defined to include a subsequent indefinite period. The drafting error rendered the contracting-out void, a decision that is likely to worry practitioners.
Most commercial leases include an extended definition of “the term” to ensure that the parties (and, more importantly, previous tenants and/or guarantors) remain bound by the provisions of the lease if the tenant remains in occupation after the contractual term has expired. Will it be possible to distinguish the decision in Newham if a lease clearly separates the period of the demise from any provisions dealing with liability for breaches of the lease?
It could be argued that it is dangerous to include any provisions in a contracted-out lease that assume that a tenancy might continue after the expiry of the contractual term. On the other hand, why should a landlord be deprived of the ability to include covenants in a lease that extends a tenant’s liability where that tenant wrongfully remains in possession of premises until forced to vacate by an order of the court?
This decision serves to remind the danger of the wholesale adoption of precedents. Provisions that conflict with what the parties are trying to achieve should be deleted wherever possible, or amended, since it is not always easy to predict which way the courts will jump.
Allyson Colby is a property law consultant
