Why exclude security of tenure?
From a landlord’s perspective the main benefit of excluding security of tenure under the Landlord and Tenant Act 1954 (the “Act“) is that at the end of the lease, the tenant has no right to remain in the property or to compensation and the landlord is given automatic possession. This allows the landlord to plan from the outset future commercial projects for the property – they may want to occupy, redevelop or change the use of the property, which will be easier without the hurdles set out in the Act.
Tenants who do not consider the premises as critical to their business or who don’t have expensive fit out costs may be willing to accept this exclusion.
How do I make a statutory declaration?
The landlord must serve a warning notice on the tenant and guarantor (if applicable) before entering into an agreement for lease, lease or before the tenant goes into occupation. The notice advises the tenant that it is being offered a lease without security of tenure, and that the tenant should not commit to the lease without seeking professional advice from a surveyor, lawyer or accountant.
The statutory declaration must be made before the tenant enters into the lease. It must be sworn by both the tenant and guarantor, or someone authorised by them, in front of an independent solicitor or commissioner for oaths. It must be done in person, rather than by Zoom or similar.
The landlord should see the properly sworn statutory declaration prior to completion and ensure that the relevant wording excluding security of tenure is included in the lease, otherwise it will not be validly contracted out. A lease which is “contracted out” has no security of tenure.
Is there an easier way?
A simple declaration can be made if the tenant has received the warning notice at least 14 days before the grant of the lease. A simple declaration is just signed by the tenant – there’s no need to track down an independent solicitor.
In practice, a statutory declaration is preferred as parties often do not want to wait 14 days to complete the transaction.
Why does the guarantor need one?
A guarantee obliges the guarantor to take a new lease of the property if the tenant is unable to pay the rent, or becomes insolvent, and consequently this is thought to create an agreement for lease.
A guarantor becomes contractually bound to enter into a new lease when the landlord serves notice on the guarantor. However, the meaning of “contractually bound” might be broad enough to include conditional contracts. If so, a guarantor would become contractually bound on completion of the guarantee.
In view of this uncertainty, the safest approach is for the contracting-out procedure to be carried out, within the prescribed time limits and before completion of the guarantee or authorised guarantee agreement (AGA) (or if earlier, before the guarantor becomes contractually bound to enter into the guarantee or AGA).
This is a whole lot of bother
The government is currently consulting on Landlord & Tenant reforms and so the rules may change in the future. However, before June 2004, court orders were required when contracting out of the Act, and so the current rules are a lot easier to follow than that!
- Excluding security of tenure means the tenant will have no right of occupation at the end of a lease, and allows the landlord to plan from the outset future commercial projects for the property.
- If the landlord wishes to exclude security of tenure, it must serve a warning notice on the tenant and guarantor (if applicable) and in response the tenant must sign a simple declaration or a statutory declaration.
- The simple declaration or statutory declaration must be completed before entering into an agreement for lease, lease or before the tenant goes into occupation, otherwise the tenant may gain security of tenure.