How certain is certain?

It is embarrassing for any solicitor acting for the landlord of business premises to discover at a late stage that he or she has failed to exclude a letting from the operation of ss. 24 to 28 of the Landlord and Tenant Act 1954 when instructed to do so. But how easily can this happen? The decision of the Court of Appeal in Newham London Borough Council v Thomas-Van Staden [2008] EWCA Civ 1414 provides an illustration.

Section 38(4) of the Act, introduced in 1969, gave the court a quite limited power to authorise, on a joint application by the intended parties to a business tenancy, an agreement between those parties excluding the operation of ss. 24 to 28 from the letting. One of the cardinal requirements, however, was that the tenancy should be granted 'for a term of years certain'.

Judicial attention

The expression 'for a term of years certain' has prompted much necessary judicial attention. For instance, in Re Land and Premises at Liss, Hants [1971] 3 WLR 77 it was held that the expression also included 'a term certain' of less than a year. In Nicholls v Kinsey [1994] 1 EGLR 131 the Court of Appeal held that a tenancy granted for a term of 12 months, and thereafter from year to year until determined by 12 months' notice, fell outside that expression. Accordingly, the court's order in that case was null and void. Until the Court of Appeal decision in Receiver for the Metropolitan Police District v Palacegate Properties Ltd [2000] 1 EGLR 63, it was unclear whether a tenancy containing a break right could qualify as a tenancy 'for a term of years certain'. The court decided that it could.

To return to the present case, Newham London Borough Council involved two appeals. We are concerned only with the first. The council intended to redevelop a defined area as part of its regeneration plan. It agreed in 2003 to grant a lease of business premises within that area to the tenant for a fixed term, on the basis that it was excluded from the operation of ss. 24 to 28. The lease was also to contain a rolling break right in the council's favour.

The necessary court order was obtained, and the lease was granted. The term was stated to expire on 28 September 2004, but was then defined expressly to include 'any period of holding over or extension of it whether by statute or at common law or by agreement'. The tenant remained in occupation after 28 September 2004, continuing to pay rent. The council later served notice and sought possession. The single issue for the Court of Appeal was whether, after 28 September 2004, the tenant occupied under a tenancy to which the Act applied.

Deliberate inclusion

Rimer LJ, with whom the other two members of the court concurred, concluded that the words of extension could not be disregarded as meaningless surplusage. They were plainly included deliberately, and to achieve a legal effect. A meaning therefore had to be attributed to them. One possibility was that they were included to ensure that the parties remained bound by the provisions of the lease during any period of holding over or extension. It was short step from there to conclude that their additional effect was to create a term of years certain until 28 September 2004 plus any further period of holding over.

Accordingly, he held that the lease could not be regarded as having been granted 'for a term of years certain' for the purposes of s.38(4) of the Act. The lease had therefore never been excluded from the operation of the provisions of ss. 24 to 28 (the court order was a nullity). From and after 28 September 2004, the tenant enjoyed a continuation tenancy by virtue of s.24 of the Act. The council was not entitled to possession.

Act amended

Of course, the law has changed since the facts of Newham London Borough Council occurred, partly as a response to criticisms that the court order procedure was expensive and time consuming. With effect from 1 June 2004, s.38(4) of the Act was repealed in its entirety by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003, so abolishing the need for a court order. New procedures were set out in s.38A of the Act, together with scheds 1 to 4 of the Order.

Section 38A(1) of the Act now empowers the intended parties to a business letting to enter into an exclusion agreement in relation to that letting. Section 38A(3) provides that any such agreement will be void, however, unless (a) the landlord has served on the tenant a notice in the form, or substantially in the form, set out in sched.1 of the Order and (b) the requirements specified in sched.2 of the Order are met. Nevertheless, s.38A(1) still requires that the tenancy should be granted 'for a term of years certain'.

It is extremely doubtful whether the courts would place any different construction upon the expression, despite the statutory changes that have taken place. The pitfall highlighted by the decision in Newham London Borough Council therefore still remains.