If the landlord of business premises wants to exclude the tenant’s right to a new lease when the term ends, he must ensure that the tenant enters into an exclusion agreement. Section 38(A) of the Landlord and Tenant Act 1954 sets out the procedure that must be adopted, and as long as the landlord follows it he can usually rest assured that he will be able to obtain vacant possession of the property. However, it is crucial that the tenancy should be granted “for a term of years certain” to ensure that the lease is excluded from the protective provisions of the 1954 Act.
In the Court of Appeal case of Newham Borough Council v Thomas Van Staden [2008] the Council agreed to grant a short term lease of business premises to the tenant outside the relevant provisions (Sections 24 to 28) of the 1954 Act, thereby denying the tenant the right to call for a new lease at the end of the term. At the time it was necessary to obtain an order of the court in order to exclude the Lease from the relevant provisions. This was done and the lease signed. However, the term was stated to expire on 28th September 2004 but was to include any previous holding over or extension of it whether by statute or at common law by agreement. The tenant remained in occupation after the term ended and the Court of Appeal was ultimately asked to determine if the tenancy continued under the provisions of the 1954 Act.
Due to the inclusion of these additional words, after the expiry date of the term, it was held that the lease had never been excluded from the operation of Sections 24 to 28 of the 1954 Act (despite the court order) so the tenant had a contractual tenancy. The Council landlord was therefore not entitled to possession. Although the required process of exclusion no longer involves a court order but instead forms of notice and declaration, the judgment still remains valid today.
The reason for these additional words was to avoid similar circumstances to the 1993 case of City of London Corporation v Fell which held that a guarantor or former tenant of a lease had no liability for any rents due after the contractual term had expired unless such additional words had been expressly included.
Whilst a landlord may be stuck with a tenant he would rather not retain, he may now be able to insist that existing guarantors and former tenants join in the new lease and become liable for the rent and other covenants.
Indeed, Section 35 of the 1954 Act gives the court the power, in the absence of agreement between the parties, to decide whether or not to release a former tenant or guarantor from any liability under a lease. The court must have regard to all the relevant circumstances, including the provisions of the Landlord and Tenant (Covenants) Act 1995, which in effect releases absolutely a former tenant from his obligations after the lease has been assigned twice.
If a tenant has assigned to a third party and he then applies for a new lease under the 1954 Act, the court could be asked to make the original former tenant a guarantor of the new lease until the existing tenant has assigned it to a third party.
Landlords with a “Van Staden lease” may now have a stronger tenant’s covenant as they have more parties from whom to claim any arrears of rent, so increasing the value of the lease. What turns out to be an apparent drafting error can therefore be offset by the Landlord’s ability to look to more parties than are usually available following the amending provisions of the 1995 Act. There must be many of these leases about and their existence may not have wholly negative outcomes for landlords wanting possession.
When is a Term Certain?
