Lease of life
A recent judgment on commercial leases may be more advantageous to landlords than first thought, says Geoffrey Wolfarth
It is generally accepted that the recent case of Newham v Van Staden [2008] EWCA Civ 1414 is bad news for landlords, but there may be a silver lining in certain situations.
The Van Staden case decided that certain commercial leases which were thought to have been excluded from the security of tenure provisions of the Landlord and Tenant Act 1954 did not meet the statutory requirements for exclusion.
The case turned on the fact that the wording in the relevant lease was that the definition of 'the term' included any period of holding over or extension of the lease whether by statute or at common law or by agreement. This was held by the court to make the term of years granted by the lease not 'a term of years certain' which meant that the lease would not attract the protection of the 1954 Act.
What practitioners may not realise is that the reason why this form of words was commonly used was to bypass the consequences of the earlier case of City of London Corporation v Fell [1993] 4 All ER 968. Fell held that a guarantor or former tenant of a lease had no liability for any sums due under the lease which arose after the expiry of the contractual term unless there were express words in the lease which indicated that the liability did so continue.
After this case, practitioners altered their precedents to include the definition as used in Van Staden and this is likely to have been used in hundreds if not thousands of leases granted since the Fell case. Also, since 1 June 2004, when the formalities for excluding leases under the 1954 Act changed (the need for obtaining a formal court order was abolished) it is probable that a large number of leases in this form were purportedly excluded from the 1954 Act just as in Van Staden. Indeed, I have come across several leases of this type in the last few months.
Liable guarantors
Accordingly, while such Van Staden leases will enjoy full security of tenure under the 1954 Act, any guarantors of such leases (including former tenants) will potentially remain liable for any period of holding over after the date of the contractual term even though the original tenant might have long since assigned the lease to a third party.
Further, since landlords may have the right as part of the renewal procedures under the 1954 Act to require existing guarantors and/or former tenants to join into the new lease, then any such guarantor or former tenant may be required to become a guarantor for the new 'renewal' lease which might continue for a further 15 years. This right for landlords can arise in the case of a partnership (e.g. professional firms of solicitors or accountants) under section 41A(6) of the 1954 Act or indeed generally pursuant to section 35 in respect of all leases which are renewed under the 1954 Act.
This latter section directs the court when considering the terms of any renewal lease to have regard to all relevant circumstances which expressly include the operation of the provisions of the Landlord and Tenant (Covenants) Act 1995. This Act as a general principle provides for former tenants to be absolutely released from their tenant obligations after the lease has been assigned twice. So, therefore, if a tenant has assigned to a third party who applies for a new lease under the 1954 Act, the landlord could request the court in its discretion to make the original former tenant a guarantor of the newly granted lease until such time as the existing tenant has assigned the new lease to a third party when the former tenant would be released.
Accordingly, in such a situation, the landlord would enjoy the benefit of a stronger tenant covenant than he might otherwise be entitled to and this would indeed mean that the value of the landlord's investment may be substantially enhanced, and he would have more potential parties from whom to recover any arrears of rent.
Accordingly, landlords should check their portfolios to ascertain whether the Van Staden decision applies to any of their leases (which have guarantors or former tenants) as they may be able to turn the situation to their commercial advantage.