Landlord and Tenant Act 1954 cases concerning renewal leases and the implications of COVID-19 are beginning to be reported reflecting the consequences of successive lockdowns and the severe disruption to many businesses which ensued.
The cases provide a fascinating insight both into the challenges which many businesses have and continue to face but also the judicial interpretation of the economic and legal landscapes.
In the case of S Franses Limited -v- The Cavendish Hotel (London) Limited the Court considered the rent which it was appropriate to charge in a renewal lease, taking into account the implications to the business concerned of COVID-19.
The landlord and tenant had agreed to two renewal leases of 15 years with 5 yearly rent reviews and no break clauses. The rent payable pursuant to the previous (expired) lease was £220,000.
The Court “stood back” as advised by the Royal Institution of Chartered Surveyors and considered an annual rent of £102,000 to be appropriate. That clearly reflected a significant reduction from the rent previously payable. This was an acknowledgement of the difficult trading conditions and the implications of those conditions on rents.
In the case of WH Smith Retail Holdings Limited -v- Commerz Real Investment Gesellshaft mbh the Court dealt with the renewal of a lease of a newsagent and post office within a large shopping centre. The parties had agreed that a pandemic rent suspension clause should be included in the new lease which would provide for a 50% rent reduction (service charge would remain payable) where the clause was triggered.
The landlord proposed the rent suspension clause should come into effect if the tenant was compulsorily required to cease trading as a result of government measures in response to a pandemic. The tenant proposed the clause should be triggered if (as a non essential retailer) they were not able to open due to an epidemic, public health emergency or any government restrictions.
The Court agreed with the tenant and commented that whilst the tenant might technically be able to remain open in certain circumstances short of a lockdown, being able to do so in a deserted shopping centre was of little benefit to it.
This case should perhaps be seen in the context of the retail sector which has been particularly badly hit during the pandemic. The outcome would almost certainly have been different had the shop been located in the high street or been a retailer of goods deemed as “essential”.
Following on from the WH Smith case, there comes the further County Court decision in Poundland Limited -v- Toplain Limited. The tenant sought to rely upon the WH Smith case to insert a clause in a lease being renewed under the Landlord and Tenant Act 1954 which would reduce both rent and service charge by 50% in the event of a government imposed lockdown. The landlord objected to the inclusion of the clause.
The Court agreed with the landlord and considered the inclusion of the clause would neither be fair nor reasonable. The Court commented that the Landlord & Tenant Act 1954 was not intended to rewrite previously negotiated risks (notwithstanding that a lockdown would almost certainly not have been in the minds of the parties at the time of the grant of the preceding lease). The Court commented that a suspension clause linked to COVID-19 would impose a sharing of risks which the landlord would have no control over (as distinct from the tenant which would have recourse to government reliefs and support schemes).
The tenant additionally sought to vary the forfeiture clause to include a proviso that the landlord could not forfeit during a lockdown. Again the Court rejected this proviso stating it would significantly alter the commercial balance between the parties.
Decisions are clearly being made by Courts on the merits of each case and parties will need to scrutinise these (and other) judgments in the future to determine the strengths and weaknesses of their positions when it comes to negotiating both new and renewal lease terms.
Further cases will no doubt follow and this area of law will continue to evolve to reflect the implications of trading during a pandemic.
If you have any queries concerning the points raised in this blog please contact Mark Withers.