Originally published February 2004
The Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 was made on 1st December 2003 and will come into force on 1st June 2004. Its provisions will operate to amend certain elements of the Landlord and Tenant Act 1954 and one of the most significant areas of change relates to "contracting out" or excluding security of tenure and the provisions of Sections 24-28 of the 1954 Act.
During the consultation process on the proposed changes to the 1954 Act, the Office of the Deputy Prime Minister commissioned a survey of the way in which County Courts have dealt with "contracting out" applications. The results showed that only a small percentage of applications for contracting out orders were rejected and that the grounds for their being turned down were procedural rather than substantive. Indeed, the Courts do not have discretion or jurisdiction to intervene in the terms agreed between the parties or to impose additional terms where agreement has been reached.
The current procedure involves the expense of making the applications and delay as the applications are processed by the Court. Current estimates indicate that at least 50,000 "contracting out" applications are made each year and that this figure is on the increase. The need for interim arrangements for tenants to be able to occupy premises pending the making of a Court Order, such as short fixed-term tenancies or tenancies at will entails further expense and risk which militates in favour of streamlining the issue of giving up security of tenure and putting it firmly in the hands of the parties concerned.
A summary of the changes:
- There will be no need for a Court Order. The parties may exclude Sections 24-28 by agreement.
- The landlord will serve a "health warning" Notice on the tenant at least 14 days before entering into the agreement, although it will still be possible to contract out if Notice is not given 14 days in advance.
- The tenant will sign a declaration that he understands the implications. In circumstances where contracting out of security of tenure is to take place less than 14 days before the commencement of the agreement, the tenant will be required to make a statutory declaration.
- Similar provisions will apply for agreements to surrender.
The Form of the Tenant’s "Health Warning" Notice for Contracting Out :-
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You are being offered a Lease without security of tenure. Do not commit yourself to the Lease unless you have read this message carefully and have discussed it with a professional adviser. Business tenants normally have security of tenure – the right to stay in their business premises when the Lease ends. If you commit yourself to the Lease you will be giving up these important legal rights.
It is therefore important to get professional advice – from a qualified surveyor, lawyer or accountant – before agreeing to give up these rights. If you receive this Notice at least 14 days before committing yourself to the Lease, you will need to sign a simple declaration that you have received this Notice and have accepted its consequences, before signing the Lease. But if you do not receive at least 14 days’ notice, you will need to sign a "Statutory" Declaration. To do so, you will need to visit an independent solicitor (or someone else empowered to administer oaths). Unless there is a special reason for committing yourself to the Lease sooner, you may want to ask your landlord to let you have 14 days to consider whether you wish to give up your statutory rights. If you then decide to go ahead with the agreement to exclude the protection of the Landlord and Tenant Act 1954, you would only need to make a simple declaration, and so would not need to make a separate visit to an independent solicitor. |
The requirements to be met in relation to the Tenant’s "Health Warning" Notice are that it must be served on the tenant no less than 14 days before the tenant enters into the tenancy to which it applies or (if earlier) becomes contractually bound to do so. If this requirement is met, the tenant or a person duly authorised by him must make a simple declaration that he has read the Notice and accepts the consequences of entering into the agreement. If the Notice is not served at least 14 days before entering into the agreement, the tenant, or a person duly authorised by him, must make a Statutory Declaration confirming that he has read the Notice and accepts the consequences of entering into the agreement. Reference to the Notice and to the simple declaration or the Statutory Declaration, must be entered in or endorsed on the tenancy. The "contracting out" agreement must also be contained in or endorsed on the tenancy.
Agreements to Surrender
The safeguard remains in relation to agreements for a future surrender, which remove a tenant’s right to renew his tenancy. These provisions are parallel to those relating to the contracting out provisions relating to the grant of a new tenancy and they will apply where the parties have not already entered into an agreement to exclude Sections 24-28 in relation to the surrender of a tenancy.
Transitional Provisions
- Where an agreement for surrender is made before 1st June 2004 or authorised by the Court before that date, the 2003 Order will have no effect.
- Any provision in a tenancy requiring an exclusion order to be obtained in respect of a sub-tenancy shall, after 1 June 2004, be construed as requiring the "health warning" procedure to be followed.
- An agreement for Lease entered into before 1 June 2004 which contains provisions for an exclusion Order shall survive the amendments bought in by the 2003 Order and the Court may deal with the application.
© RadcliffesLeBrasseur
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
