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Contracting out - problems Print
The new provisions on contracting out (in force since June 2004) require L to serve a ‘health warning’ notice on T before T is contractually bound to take the lease. T then has to sign a declaration that he has received the notice, and that he knows what rights he is giving up. If T is to be ‘contractually bound’ less than 14 days after service of L’s notice, then the declaration has to be sworn before an independent solicitor as a statutory declaration. This procedure replaces the previous joint application for a court order (which, in practice, would be rubberstamped).With hindsight, many are arguing that the certainty of that more formalised procedure is to be preferred to the uncertainties created by the Regulatory Reform Order that introduced the new procedure.

Uncertainties with the new procedure include: uncertainty as to whether the warning notice has to be served personally on T (or can it be served on his solicitor); whether the warning notice can be served at the outset of the transaction or whether the terms of the lease must have been finally agreed; the need for a separate notice to be served on each T; the complications of going through an independent solicitor for the statutory declaration (which is almost always the procedure used); the problems of the lease changing slightly before completion (in practice, requiring L to serve a new warning notice, and all Ts to make new declarations); problems when there is a change of T between the exchange of the warning notice prior to the agreement for lease and the actual grant of the lease (meaning the new T has to receive a fresh notice); lack of any provisions relating to options to take contracted-out leases; the fact that the new procedure has to be undergone before T enters into an agreement for lease, rather than the lease itself; the need for separate notices on all Ts and all guarantors.

One simple alternative is being promoted; if T is legally represented, then why not simply have the health warning and acknowledgment appear on the signature page of the lease? For more on these criticisms see [2005] 145 Property Law Journal 13.

April 2005
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