Contracting out case less than fragrant for commercial tenant | commercial property law

Commercial tenants should take care they are not giving up their right to renew at the end of the term of rental leases, Thursfields Solicitors has warned.

The advice comes after a recent case where a court ruled that The Fragrance Store’s six leases had been validly subjected to “contracting out” procedures by its landlords.

The case hinged on the Landlord & Tenant Act 1954 which provides tenants of business premises with security of tenure when a lease comes to an end, unless the landlord and tenant agree the tenant will not have a statutory right to a renewal – known as contracting out.

Pam Virdee, a solicitor in the Commercial Property team at Thursfields’ Birmingham office, said: “The Fragrance Shop, also known as TFS Stores, entered into six leases for retail outlets centres with different landlords, and on each occasion TFS agreed to contract out of the security of tenure provisions.

When the leases came to an end the landlords did not want to renew, and at that stage TFS tried to argue that the contracting out procedures had not been carried out properly.”

She said that TFS had argued that:

• Its solicitors did not have authority to receive contracting out notices from the landlord.
• The individuals who made the declarations on its behalf did not have the authority to do so.
• Its declarations had not been completed fully.

However, she explained that the court concluded that all six leases had been validly contracted out and that the tenant was not entitled to a statutory right to renew any of them.

The case of TFS Stores Limited v BMG (Ashford) Limited and others came after the landlords had decided to let all six retail spaces to The Perfume Shop, a direct competitor of TFS.

Pam added: “This case serves as a stark reminder to tenants to make sure they want to contract out of the protection afforded by the 1954 Act before entering into a lease, or else they could risk facing undesirable consequences.”

Anyone with queries on commercial property law can contact Pam Virdee on 0121 312 5174 or pvirdee@thursfields.co.uk.