A CA decision reported earlier this year has resulted in many contracted-out tenancies not, in fact, being contracted out.

The key point is that LTA 1954 gives security of tenure to a business T (ie a right to a lease renewal on expiry of the original lease). However, that statutory right of renewal can be excluded by consent of the parties; in the old days it used to be via a court order, but these days it will usually be done by a declaration from T. In that situation, T will not have the right to renew the lease.

However, it is only possible to contract out of LTA 1954 if the lease is for a ‘term of years certain’. Typically, this will be a fixed-term lease, or a fixed term with a break clause. But, a lease will not be a ‘term of years certain’ if it was granted from year to year, or if it was granted for a fixed term and then from year to year. What the CA has now done, however, is to make clear that it will also not be a ‘term of years certain’ if it is granted for a fixed term with ‘any continuation, extension or holding over’. Thus, in the CA case, a lease contained standard wording in which ‘the term’ was defined as including any continuation tenancy under LTA 1954 (as is standard practice). The CA’s surprising conclusion was that the ‘essential effect’ of those additional words was that the lease was no longer for a ‘term of years certain’. Thus, it was not possible for it to be validly contracted out of the 1954 Act.

The problem is that most precedent business leases define ‘the term’ as including any continuation tenancy under LTA 1954, and sometimes as including any period during which T holds over after the contractual term has expired. That provision was adopted by draftsmen as a result of Fell [1994] where the HL said an original T was not liable for the rent arrears of an assignee because the lease merely made him liable for rent throughout the term of the lease (and, in the HL’s view, the lease meant simply what it said – T was not liable for any rent due after the contractual term had expired). In response, therefore, the convention arose of defining ‘the term’ as including any continuation or extension period. That wording, however, has now been totally undermined by the CA decision.

It is worth noting that Fell [1994] does not seem to have been mentioned in arguments before the CA. Certainly, the view of many commentators is that this latest CA decision is fundamentally wrong. However, in the meantime, practitioners have to accept that many contracted-out leases are – in the CA’s view – not validly contracted out (and therefore those business Ts will usually have the right to lease renewals).

It is a highly unsatisfactory outcome. For a commentary on Newham v Thomas-Van Staden [2008] EWCA Civ 1414 (access free at ) see [2009] NLJ 1202.