Contracted-Out Leases: The Warning Notice and the Declaration

Sometimes a landlord doesn’t want a tenant to have the automatic right to renew at the end of the term. Maybe they’re planning to redevelop, or sell with vacant possession, or move in themselves. In those cases the landlord can grant a contracted-out lease from the renewal protections in the 1954 Act. It’s a perfectly normal thing to do, and landlords contract out a large share of commercial leases. But the parties have to follow the procedure exactly, or the consequences land squarely on the landlord.

What a Contracted-Out Lease Means

Normally, a business tenant has security of tenure: the right to stay on and request a new lease when the term ends. Contracting out removes that. At the end of a contracted-out lease, the tenant has to leave. There’s no statutory right to renew and no obligation on the landlord to offer a new lease.

That’s a significant thing for a tenant to give up, which is exactly why the law surrounds it with a procedure designed to make sure they understand what they’re agreeing to.

Step One: The Warning Notice

Before the parties enter into the lease, the landlord must serve a notice on the tenant. The notice is in a prescribed form and it does one job: it warns the tenant, in fairly blunt terms, that they’re agreeing to a lease without the protection of the 1954 Act, and suggests they take professional advice.

The notice has to be served before the tenant commits to the lease. Serve it after the event and the contracting out doesn’t work.

Step Two: The Tenant’s Declaration

Having received the warning notice, the tenant then makes a declaration confirming they’ve received it and accept the consequences. There are two kinds, and which one applies depends on timing.

• If the landlord serves the warning notice at least 14 days before the parties enter into the lease, the tenant can make a simple declaration.
• If less than 14 days remain (because the deal is moving quickly), the tenant must make a statutory declaration, sworn before an independent solicitor or commissioner for oaths.

That 14-day line trips people up constantly. If you rush completion and don’t leave a clear two weeks, you’ll need a statutory declaration and an independent solicitor to witness it. Plan for it early and it’s painless. Leave it to the last minute and it becomes a scramble.

Step Three: Get It Into the Lease

Finally, the lease itself has to refer to the notice and the declaration, with an agreement between the parties to exclude the relevant sections of the Act. All three elements (notice, declaration, and the wording in the lease) have to line up.

I asked Richard, our SRA-regulated co-founder, how to approach the contracting-out procedure:

Contracting out of the 1954 Act is governed by rules that must be followed exactly. There are two ways of going about it, each with its own advantages and disadvantages. You have to choose the one that suits you and follow the rules precisely. At Aqqord, we’ve worked hard to make it easy to make that choice and get the mechanism right.

Richard, our SRA-regulated co-founder

What Happens When a Contracted-Out Lease Goes Wrong

This is the part that should focus the mind. If the procedure isn’t followed properly (notice served too late, wrong type of declaration, missing wording), the contracted-out lease can be ineffective. And the result isn’t a neutral one. The tenant ends up with full security of tenure after all, exactly what the landlord was trying to avoid. The landlord can find themselves unable to get their own property back when they need it.

There’s no quick fix once the lease is signed. That’s why the procedure is one of the few areas where it genuinely pays to be careful and to leave enough time.

Frequently Asked Questions on Contracted-Out Leases