Travis Perkins – Real Estate Bulletin – September 2021
In this bulletin, we cover a number of cases that relate to the impact of the pandemic on leases that are in the process of being renewed, as well as a decision that serves as a useful reminder for tenants seeking relief from forfeiture.
- Lease Renewal Terms – COVID-19
- Lease Renewal Terms – COVID-19
- Interim Rent – COVID-19
- Relief from Forfeiture – Delay
In March 2018, T served a notice to renew its lease of premises at the Westfield Centre in Shepherd’s Bush. It operated a large store from the Centre, part of which was a post office (and therefore classed as essential retail and not affected by lockdown restrictions).
The parties had agreed most of the terms for the renewal lease, including the principle that it should contain a pandemic rent suspension clause, but couldn’t agree on what the trigger for the rent suspension should be (nor on the amount of rent to be payable under the new lease).
In relation to the rent suspension clause, the County Court found that the trigger should be the closure of non-essential retailers (L had argued for rent suspension only if T was required to close, but the judge pointed out, given the presence of the post office, which is classed as essential retail, the rent suspension would never kick in).
In relation to the rent, the argument had been around whether there should be an uplift to take account of the benefit of the rent suspension clause. Here, the judge found an uplift was not appropriate as the market already priced this in.
- Practical tip – this is the first published court judgment of a lease renewal looking at the question of ‘pandemic clauses’ and the impact of COVID-19 on rent levels
- Practical tip – although only a County Court decision, it is useful for tenants and has already been referred to in the next case we are going to look at
- Practical tip – click to listen to Tomkins Talks coverage of this case.
Again, the parties in this case had agreed most of the terms for a renewal of T’s lease of premises in Twickenham, and again, one of the sticking points was the inclusion of ‘pandemic clauses’.
T wanted a clause which would reduce the rent and service charge payable by 50% in the event of a Government-imposed lockdown. Its position was that this would ‘modernise’ the lease in light of the lockdowns experienced during the current pandemic. It also referred to the above case in support of its argument.
However, the County Court saw a distinction with that case, as the parties had already agreed to an inclusion of a pandemic clause, they just couldn’t agree on the trigger.
- Practical tip – there is some scope for ‘modernising’ a lease on renewal, in accordance with the long-established authority set out in the case of O’May v City of London Real Property Co Ltd in 1983
- Practical tip – it is for the party seeking to depart from the terms of the previous lease to show that any changes are fair and reasonable in the circumstances. In this case, the judge decided the inclusion of the pandemic clause would not be
- Practical tip – click here to find out what Tomkins Talks has got to say about this case too
After protracted court proceedings that ended up in the Supreme Court in 2018, T established its right to a new tenancy of its premises in Jermyn Street, London, which it had occupied under two leases. The parties then agreed renewal terms, save for the rent payable under the new lease and the interim rent (i.e. the rent payable when a tenancy comes to its contractual termination date but is continued under the security of tenure provisions of the Landlord and Tenant Act 1954). Interim rent was payable by T from January 2016.
In relation to the rent under the renewal lease, the County Court held that this should be reduced from £220,000 (the passing rent under the previous lease) to £102,000 per year. The valuation was approached using traditional zoning methodology, rather than assuming any particular percentage reduction in value attributable to COVID-19.
The interim rent was set at £160,000 per year, which took account of 3½ years when rents were close to their market peak and also the impact of COVID in the period since March 2020.
- Practical tip – these cases, although not binding, give an idea of how the courts are starting to approach the issues arising out of the pandemic situation and their attempts to find a balance between the parties following an unprecedented period in modern times
L had let a property in Leicester to T for a 20 year term. The property had a lock-up shop on the ground floor and residential accommodation above. In June 2018, T mistakenly only paid £1,500 of the £2,000 quarterly instalment of rent, leaving arrears of £500. On 1 September 2018 L’s managing agent issued an invoice for the September rent, which was due on 29 September. The invoice did not mention the arrears.
On 13 September 2018, L forfeited the lease by peaceable re-entry. At that point, T paid the arrears and indicated to the managing agents that the September rent would be paid (although, ultimately, it wasn’t).
Time passed without much further substantive contact between the parties and on 4 February 2019, L re-let the shop and the living accommodation on two separate leases to new tenants. Some three weeks later – so, five and a half months after the lease had been forfeited – T applied for relief from forfeiture. The County Court refused to grant relief due to T’s delay, even though she thought L’s decision to forfeit based on a small proportion of arrears was “harsh business practice”. T successfully appealed to the High Court, which granted relief, but this has been overturned by the Court of Appeal.
- Practical tip – relief from forfeiture is an equitable remedy, available to tenants (and third parties with an interest in the property) at the court’s discretion
- Practical tip – where a lease has been forfeited by peaceable re-entry, a tenant should make any application for relief in a timely fashion and within the required timescale for the relevant court
- Practical tip – the fact that there is a time limit doesn’t mean you should wait until the eleventh hour to make an application – indeed, as relief is discretionary, the courts may well look more favourably on a tenant where they have forewarned their landlord that an application will be made and have provided a plausible explanation for the delay
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014