Irwin Mitchell | Newsletters | Lease renewal decision leaves the landlord with a pounding headache!

Lease renewal decision leaves the landlord with a pounding headache!

As all commercial landlords and tenants will know, it is rare to obtain a judgment in relation to a lease renewal. The most recent judgment to send waves through the property world was that of Iceland Foods Limited v Castlebrook Holdings Limited  in December 2013 where the Court ordered a tenant to take a new lease for a term longer than it had asked for. However, last month, an unusual, unopposed lease renewal, Flanders Community Centre Ltd v London Borough of Newham (2016), made a rare appearance before the High Court. It gives landlords and tenants a very clear warning on how important it is for experts to produce clear, thorough and reliable expert evidence to the Court.

Background

In 2001, the London Borough of Newham let a property to the Flanders Road Community Association for use as a community centre. It was in a poor state of repair and the tenant agreed to carry out and pay for repair works estimated to cost £14,300. The parties had agreed that if the tenant did not do the repairs within a year, the rent would increase to £1,200. To reflect these works and a further onerous term that the tenant had to monitor the use and membership of the community centre, (allowing the landlord to take action if they discovered any discrimination), the annual rent was agreed at £1.

The lease expired in 2008, with a rent of £1 demanded throughout the term of the lease and the parties entered into negotiations for a new lease. However, the parties could not agree on the new rent. The tenant maintained that the annual rent of £1 should remain whilst the landlord argued for a market rent of £16,000.

Under the Landlord & Tenant Act 1954, the Court assesses the new rent at the figure at which the premises can be let in the open market. At trial, in the County Court, the Judge said she could not rely on the landlord’s expert evidence which was described as inadequate. Her main concern was the absence of reliable evidence of market rent as the landlord’s expert had not produced any information on the actual lease terms of its comparables and so she could not consider if those leases contained any onerous terms. Therefore, in the absence of such evidence, the Judge took into account the current passing rent of £1 and ordered that the new rent should be £1 per annum.

The landlord appealed the Court’s decision.

High Court decision

The High Court upheld the trial judge’s decision on the basis that whilst she could carry out her own analysis, she was not obliged to do so in the absence of help and evidence from the parties. As the only concrete evidence before her was the passing rent, she was entitled to give weight to it. The High Court also held that it was not relevant that the landlord’s expert had appeared to incorrectly assume that the new lease contained the same onerous terms as the current lease. Further, on appeal, the landlord tried to introduce a new argument that the rent should have been £1,200 as the tenant had not carried out the works of repair but the Court would not entertain this attempt of having a second bite of the cherry.

Practical considerations

Preparation is key! This decision emphasises the importance of putting all arguments before the Court at the first hearing and of giving the Court clear and complete expert evidence. The Court will make decisions based on the information before it and, in this case, the inadequate comparables proved to be a disaster for the landlord.


 

June 2016