Contracting Out of the Landlord and Tenant Act 1954

Why Security of Tenure Matters for Commercial Landlords

Under LTA 1954 Part II, a qualifying business tenant whose tenancy expires has the right to remain in occupation and apply to the county court for a new tenancy. The landlord can only oppose renewal on one of the statutory grounds in s.30(1)(a)–(g) — which include persistent rent arrears (ground b), the landlord's intention to redevelop (ground f), and the landlord's intention to occupy for their own business (ground g). If the landlord successfully opposes renewal on grounds (e), (f), or (g), the tenant is entitled to statutory compensation. Security of tenure means the lease does not automatically end on the contractual date — the landlord must serve a valid s.25 notice and, if contested, litigate in the county court or Upper Tribunal. For landlords who want maximum flexibility — to redevelop, sell with vacant possession, or re-let freely — contracting out at the outset is essential.

• LTA 1954 Part II: qualifying business tenants have security of tenure — right to apply for a new tenancy at the end of the term
• Grounds for opposing renewal (s.30(1)(a)–(g)): limited to specified reasons; grounds (e), (f), and (g) trigger statutory compensation
• Security of tenure: tenancy does not automatically expire on the contractual date — landlord must serve a s.25 notice to terminate
• Excluded tenancy: contracting out removes security of tenure — tenancy ends on the contractual term date automatically
• Applicability: LTA 1954 Part II applies to tenancies where the property is occupied for the purposes of a business (s.23) — not dwellings

The LTA 1954 s.38A Exclusion Procedure

The Regulatory Reform (Business Tenancies)(England and Wales) Order 2003 (RRO 2003) replaced the requirement for prior court approval with a prescribed notice and declaration process. For an exclusion agreement to be valid under s.38A, three steps are required: (1) the landlord must serve a warning notice in the prescribed form on the tenant; (2) the tenant must make either a simple declaration or a statutory declaration (depending on timing); (3) the agreement or lease must contain or refer to a declaration that LTA 1954 ss.24–28 are excluded. All three steps must be completed before the tenancy is granted or before the parties become contractually committed to its grant. The exclusion applies to that specific tenancy only — each new lease requires its own fresh procedure.

• RRO 2003 (SI 2003/3096): replaced court approval with notice and declaration procedure from 1 June 2004
• Step 1: landlord serves prescribed warning notice on tenant
• Step 2: tenant makes simple or statutory declaration (depending on timing)
• Step 3: agreement or lease records that LTA 1954 ss.24–28 are excluded
• Pre-commitment requirement: all three steps must be completed BEFORE the tenancy is granted or before any binding commitment to grant it

The Warning Notice — Content and Timing

The landlord must serve the prescribed warning notice in the form set out in Schedule 1 to the RRO 2003 (for a new tenancy) or Schedule 3 (where the current tenancy is a continuation tenancy). The notice must be in the prescribed form — substantial compliance is insufficient. It informs the tenant of: the right to security of tenure under LTA 1954 Part II; the fact that the landlord proposes to exclude those rights; and the tenant's right to refuse or seek professional advice. The notice must be served on the tenant directly — not merely on the tenant's solicitor unless specifically authorised. The timing of service determines which form of declaration the tenant must use: if notice is served 14 or more days before the tenancy is granted, a simple declaration suffices; if fewer than 14 days elapse, a statutory declaration is required.

• Prescribed form: Schedule 1 RRO 2003 (new tenancy) or Schedule 3 (continuation tenancy) — no departure from the prescribed form
• Content: must inform tenant of security of tenure rights, the landlord's proposal to exclude them, and the right to refuse
• Service: must be validly served on the tenant — service on the tenant's solicitor is not sufficient unless the solicitor is specifically authorised to accept
• ≥14 days before grant: tenant makes a simple (unsworn) declaration in the form in Schedule 2 to the RRO 2003
• <14 days before grant: tenant must make a statutory declaration sworn before an independent solicitor (Schedule 4 to the RRO 2003)

Simple Declaration vs Statutory Declaration

Where the warning notice is served 14 or more days before the tenancy is granted (or before the parties become contractually committed), the tenant completes a simple declaration in the form in Schedule 2 to the RRO 2003. This is an unsworn written statement — it does not require a solicitor. It confirms that the tenant has received the warning notice and accepts that the tenancy will be excluded from LTA 1954 security of tenure. Where fewer than 14 days elapse, a statutory declaration is required — the tenant must swear the declaration before an independent solicitor (one who does not act for the landlord in the transaction) or another authorised person. For company tenants, the declaration must be signed by a director, secretary, or duly authorised officer. The lease itself must record: that the warning notice was served; that the declaration was made; and that LTA 1954 ss.24–28 are excluded.

• Simple declaration (≥14 days): unsworn; prescribed form (Schedule 2 RRO 2003); signed by tenant or authorised company officer
• Statutory declaration (<14 days): sworn before an independent solicitor or commissioner for oaths; prescribed form (Schedule 4 RRO 2003)
• Independent solicitor: must not act for the landlord in the transaction — must be separate from the landlord's solicitor
• Company tenants: declaration signed by a director, secretary, or duly authorised officer — board resolution evidence may be required
• Lease recital: the agreement or lease must state (a) warning notice was served, (b) declaration was made, (c) ss.24–28 do not apply to the tenancy

Common Pitfalls and Each New Lease Must Contract Out Separately

The most common errors in the contracting-out procedure are: (a) serving the warning notice after exchange of contracts — at that point the parties are already committed to the grant and the exclusion is void; (b) using a simple declaration when fewer than 14 days elapsed since the notice; (c) failing to record the exclusion in the lease itself; (d) not obtaining the declaration from an authorised person for a company tenant. A critical point for landlords granting successive leases to the same tenant: each new lease requires its own fresh procedure. The fact that the previous tenancy was excluded does not mean the renewal is also excluded. If an excluded tenancy expires and the tenant remains in occupation without a new excluded agreement being completed, the tenant may acquire LTA 1954 protection. Landlords should diarise exclusion procedure renewal as part of lease management. Note that LTA 1954 does not apply in Scotland — no contracting-out procedure is required or available there.

• Post-commitment warning notice: serving notice after exchange of contracts means the exclusion is void — tenant retains full security of tenure
• Wrong declaration form: using simple declaration when fewer than 14 days elapsed since the warning notice — exclusion is void
• Each new lease: every renewal requires a fresh warning notice and declaration — no automatic carry-forward from the previous excluded tenancy
• Periodic occupation after expiry: if an excluded tenancy expires and the tenant continues in occupation without a fresh exclusion, LTA 1954 Part II may apply
• Scotland: LTA 1954 Part II does not apply — Scottish commercial tenancies have no equivalent security of tenure; no contracting-out procedure required

Frequently asked questions