1954 Act Consultation – the validation process for surrenders

When the 1954 Act was enacted, all lease surrenders were permitted without restriction but agreements to surrender protected tenancies were void. The position has changed somewhat. As things stand today, there remains a distinction between agreements for surrender and surrenders but now agreements to surrender are permitted subject to a validation (contracting out) process. 

Surrenders

A surrender can be express or implied. An express surrender is where the tenancy is surrendered with immediate effect by a deed of surrender. No validation process is required.

An implied surrender can occur when the parties treat the tenancy as having ended, for example where the tenant returns the keys and these are accepted by the landlord. There is also an implied surrender if the parties enter into a new tenancy of the same premises or agree certain fundamental variations to the existing one. No validation process is required for implied surrenders, although if a new or varied tenancy is to be outside the 1954 Act, the parties will need to go through the contracting out procedure in respect of the new tenancy to achieve that.

Agreements for surrender

An agreement for surrender is where the landlord and tenant contract to surrender a lease on a future date. That agreement will only be enforceable against the tenant if the parties complete a validation process before exchange:

• The landlord serves a warning notice on the tenant to notify it that it is giving up its statutory right to a new lease under the 1954 Act, it can only stay beyond the surrender date if it enters into a new tenancy with the landlord, and it cannot claim compensation for its loss of business premises.
• After receiving the warning notice, the tenant makes either a simple declaration (if the warning notice was served on it at least 14 days prior to entering into the agreement for surrender) or a statutory declaration.
• The warning notice is referred to in the agreement for surrender.

That is the more straightforward situation. It becomes more complicated where there is an agreement to grant a new lease of the same premises. The validation process is not required because a) there will be an implied surrender of the existing lease and b) there is a binding agreement for a new lease which, by reason of section 28 of the 1954 Act removes security of tenure protection from the current tenancy.

However, in some circumstances it is not clear whether in fact the validation process should be followed, such as where the new lease is not of the whole or any part of the premises under the current tenancy, or a different entity (e.g. superior landlord) is to grant the tenancy.

The consultation highlights a number of problems and concerns with the current law:

• It is unnecessary - tenants who are entering into agreements to surrender their tenancy and leave the premises should not need to be specifically alerted to the fact that they are giving up security of tenure as it should be obvious.
• It is a trap for the unwary – it has been argued that the validation process is often forgotten and where it is not forgotten it causes unnecessary delays and potentially creates traps for the unwary leading to the agreement being void.
• Inconsistent protection for tenants – it is inconsistent for surrenders to be permitted without any validation process but not agreements for surrender. Section 28 may also lead to tenants inadvertently giving up the benefit of their security of tenure.
• It creates barriers to sensible commercial discussions – the validation process can prevent:
  • agreements between tenants and future landlords;
  • agreements to surrender part of premises, as section 28 does not bite for such agreements
  • Offerback clauses. These require a tenant to offer to surrender the lease to the landlord before applying for consent to assign but there is uncertainty over whether such clauses are valid in protected leases.

1. Streamlining the validation process – either removing the validation process altogether for agreements for surrender? or changing it so it mirrors the contracting out process for new leases. The consultation asks for feedback on the following questions:
   1. Do consultees agree that the validation process should mirror the proposal for contracting out?
   2. Should the prescribed wording be included in outlined text boxes?
   3. Where should the wording be displayed in the agreement for surrender?
   4. Should such a process also be in place as between tenants and prospective landlords and in respect of surrenders of part?
   5. Are offerback clauses in leases are still causing practical problems what changes are needed to the 1954 Act to address them?
       
2. Should a validation process even be required for agreements to surrender?
   1. Arguments in favour of retaining the validation process include the fact that it protects tenants from inadvertently giving up protected tenancies.
   2. Arguments against are that it can feel like an unnecessary administrative burden adding cost, delay and risks to transactions; and it does not help tenants who have actively decided to leave their premises.
       
3. Should the validation process be extended to apply to surrenders as well as agreements to surrender? If so, why?

Arguably, if tenants need the protection of the validation process for agreements to surrender, surely they need the same protection for immediate surrenders, although it would only work for express written surrenders.

4. Reform of section 28 – It is not clear that section 28 is as relevant today as when it was first enacted and it creates confusion. Consultees are asked the following questions:
   1. What purpose does section 28 serve and what benefits does it bring?
   2. What problems does section 28 cause?
   3. Should section 28 be reformed or repealed? If reformed, what reforms are required?
   4. Would the answer to c. change depending on whether the validation process is retained but reformed or abolished?