Q&A: Contracting out of the 1954 Act

Evie Barden and Tom Dobson address a landlord’s uncertainties over whether two leases have been successfully contracted out. Question I am the landlord of an office block. One of my tenants, Impala Ltd, rents an office under a five-year tenancy agreement, due to expire on 1 September 2018. The lease provides that the provisions of sections 24-28 of the Landlord and Tenant Act 1954 (the 1954 Act) are excluded; however, Impala has now served a notice under section 26 to request a new tenancy. When I asked Impala’s solicitors why the notice had been served when the 1954 Act does not apply to the tenancy, they said that the lease defined the term as “five years from 2 September 2013 including any extension of it whether by statute or common law or by agreement” and, on that basis, the parties could not exclude the operation of the 1954 Act. Is that correct? Is the position the same for Parker Ltd, another tenant which occupies on similar terms, but under a yearly tenancy? I had served a notice to quit on Parker because I wanted to obtain vacant possession in order to redevelop the entire building.    Answer In the case of Impala’s lease, the agreement to contract out of the provisions in sections 24 to 28 of the 1954 Act will not be binding given that the lease is not for a “term of years certain”. However, it is arguable (although by no means certain) that, for that reason, the tenant will be unable to request a new tenancy under section 26. In the case of Parker, the tenancy will be protected by the provisions of sections 24 to 28 of the 1954 Act and, in order to terminate its lease, it will be necessary to serve a notice under section 25, establishing one of the statutory grounds for opposition. In this case it is most likely that you would oppose on redevelopment grounds. Explanation From 1 June 2004, under section 38A(1) of the 1954 Act, the landlord and tenant have been able to agree to contract out of the security of tenure provisions (contained in sections 24 to 28) “…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…”. Therefore, in order for a tenancy to be validly contracted out of the provisions of the 1954 Act, it must be for “a term of years certain”. In Newham London Borough Council v Thomas-Van Staden [2008] EWCA Civ 1414; [2009] 1 EGLR 21, the parties had agreed that the lease would be excluded from the provisions of sections 24 to 28 of the 1954 Act. However, the lease stated that its term “shall include any period of holding over or extension”. As the term was defined as including any period of holding over or extension, the Court of Appeal found it was therefore not a tenancy for “a term of years certain” and that the tenancy was not validly contracted out of the 1954 Act. It has been suggested in commentary that the approach to construction in Van Staden is not in line with the present approach by the courts to the interpretation of contracts, as it was clearly the intention of the parties to create a contracted-out fixed term. However, at present Van Staden is binding Court of Appeal authority on whether a “term of years certain” can include a term that is expressed to include holding over or an extension. On that basis, the court will conclude that the agreement to contract out of the provisions of section 24 to 28 of the 1954 Act in Impala’s lease is not binding and any attempt to argue otherwise would have to be made to the Supreme Court or the Court of Appeal (although it will be bound by its own decisions save in limited circumstances that are unlikely to apply in this case). However, under section 26(1) of the 1954 Act, Impala can only request a new tenancy where the current tenancy is granted for a term of years certain exceeding one year, whether or not continued by section 24 of the 1954 Act, or granted for a term of years certain and thereafter from year to year. In Impala’s case, the term includes a period of holding over and it would therefore be arguable that, in line with the reasoning in Van Staden, the tenant is not entitled to request a new tenancy in these circumstances. Given the difference in the wording of section 26(1) to that in section 38A(1) of the 1954 Act, though, this is not clear-cut, and a court may well distinguish Van Staden. In relation to a periodic tenancy from year to year, there is no case law which specifically answers whether a periodic tenancy can be the subject of a valid agreement to exclude the operation of the effect of the 1954 Act. Given that a periodic tenancy from year to year is regarded by the law as a lease for a year certain with a growing interest every year, it might be thought that a yearly periodic tenancy would fall within the definition of “term of years certain”. However, by analogy with Van Staden, it appears unlikely that the court would accept that argument.  It has also been implicitly accepted by the courts that a yearly periodic tenancy will be protected by the 1954 Act: Barclays Wealth Trustees (Jersey) Ltd and another v Erimus Housing Ltd [2014] EWCA Civ 303; [2014] PLSCS 94. In those circumstances, the tenancy with Parker will be protected by the 1954 Act and, in order to terminate it, the landlord will have to comply with the termination procedure in section 25 of the 1954 Act.  However, if you intend to redevelop the premises then you may be able to oppose the renewal of the tenancy on the basis of ground (f) of section 30(1) of the 1954 Act. In practical terms, your section 25 notice will have to give no more than 12 months’ but not less than six months’ notice before the date on which the tenancy will end. You will also have to specify in the notice whether you are opposing a new tenancy and what grounds of opposition you have to the granting of a new lease. Evie Barden is a barrister at Enterprise Chambers and Tom Dobson is an associate at Charles Russell Speechlys