Contracting Out – what is it and why do you need to know about it?

If you are the landlord of a commercial property, an important question to ask is whether your leases are “contracted out”. 

What does it mean to be contracted out?

Tenants can get statutory protection when it comes to commercial leases that can allow them to stay in the property despite the lease coming to an end. However, landlords have the ability to prevent these protections from applying via a legal process known as “contracting out”.

Benefits of contracting out

Sometimes contracting out might not be the best option for a landlord, however on the whole there a number of benefits to contracting out of the statutory protection afforded to tenants:

• You can deal with the property as you like when the lease ends – whether that is by looking for a new tenant, negotiating a better price with the current tenant or even taking possession of the property for yourself.
• It provides certainty – both you and the tenant know that they cannot legally stay in occupation without you both agreeing to a new lease when the current lease expires.
• You do not have to remember to serve any notices on the tenant during the lease in order for them to be legally required to leave the property when the lease comes to an end.

Contracting out process

There is a set legal process that must be followed in order for the contracting out to be effective.

1. Provide the Tenant with Notice

The first step is to provide the tenant with a warning notice that the lease they are entering into does not have security of tenure (the option to remain in the property after the lease has expired).

2. Receive the Tenant’s Declaration or Statutory Declaration

If the notice has been provided at least 14 days before the lease is entered into, the tenant can sign a tenant’s declaration confirming that they have received the notice and understand the protections they are giving up.

If at least 14 days has not been provided, the tenant must instead swear a statutory declaration before a solicitor or commissioner of oaths.

3. Lease

Finally, the lease itself must contain a reference to the landlord’s warning notice, the declaration (whether the tenant’s or statutory) and reference to the agreement to contract out. Generally, the dates of the notices and declarations will be entered into the lease upon completion.

When entering into a new lease, whether as landlord or tenant, there are many outcomes that you might not have expected that could create problems later down the line or even when you come to terminate a lease. Dealing with matters correctly at the start will almost always prevent avoidable legal expenses further down the line.

At The Endeavour Partnership we are experienced in dealing with all forms of leases, and have the necessary experience to be able to advise you of the best ways to lease your property to a commercial tenant, and leave you safe in the knowledge that potential problems and pitfalls have been taken into account.

For advice on commercial property, including leases, please contact a member of the commercial property team on 01642 610300.

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