The Landlord and Tenant Act 1954 protects tenants from eviction for no good reason when business leases expire. It also safeguards them against the imposition of onerous new terms because, when setting the terms of a new lease, the court must consider the terms of the current tenancy, as well as any other relevant circumstances: section 35. The legislation does not prohibit parties from revising provisions that are out of date. However, landlords or tenants will have to convince the court that changes are fair and reasonable in the circumstances.
Service charge provisions often prove controversial when older leases are being renewed. Landlords may try to update service charge clauses to reflect best practice and to ensure that their leases are consistent. However, tenants usually rely on the decision in O’May v City of London Real Property Co Ltd (1982) 261 EG 1185 to resist changes that could operate to their detriment. This had led to claims that the legislation shelters tenants from commercial reality and enables them to reject modern lease provisions, which tenants would have to accept were they to move elsewhere.
The Landlord and Tenant Act 1954 protects tenants from eviction for no good reason when business leases expire. It also safeguards them against the imposition of onerous new terms because, when setting the terms of a new lease, the court must consider the terms of the current tenancy, as well as any other relevant circumstances: section 35. The legislation does not prohibit parties from revising provisions that are out of date. However, landlords or tenants will have to convince the court that changes are fair and reasonable in the circumstances. Service charge provisions often prove controversial when older leases are being renewed. Landlords may try to update service charge clauses to reflect best practice and to ensure that their leases are consistent. However, tenants usually rely on the decision in O’May v City of London Real Property Co Ltd (1982) 261 EG 1185 to resist changes that could operate to their detriment. This had led to claims that the legislation shelters tenants from commercial reality and enables them to reject modern lease provisions, which tenants would have to accept were they to move elsewhere. Consequently, landlords will welcome the decision in Edwards & Walkden (Norfolk) Ltd v City of London Corporation [2012] EWHC 2527 (Ch). The court was asked to decide whether renewal leases of premises in Smithfield Market should reserve inclusive rents, or simple rents with a variable service charge. The tenants wanted the landlord to set an annual rent that included estimated future service charges, subject to annual increase to reflect inflation. They claimed that this would be fair and reasonable. Their existing leases reserved inclusive rents and a predictable cost base would provide them with much needed financial certainty. The judge decided that the facts of this case differed significantly from O’May, which concerned an unsuccessful attempt to insert a variable service charge into a new five-year lease. The landlord had allowed the market traders to pay inclusive rents while the market was being refurbished. The concession had been extended following a disagreement between the parties and the landlord had been subsidising the cost of running the market for several years. The traders agreed that they should be responsible for operational costs and were entering into renewal leases for terms of 15 years. Therefore, they stood to benefit if the market was kept in repair. The cost of repairing the buildings was significantly lower than the operational costs of running the market, and was reasonably constant. The landlord had offered to reduce the annual rents, had agreed to rectify any existing dilapidations or structural problems at its own expense, and planned to create a sinking fund to cover fluctuations in future expenditure. Consequently, the balance of justice favoured adoption of a variable service charge to cover both operational and maintenance costs. The decision confirms that O’May will not necessarily prevent landlords from introducing new service charge arrangements on renewal, especially if they are in line with the RICS Code of Practice, “Service Charges in Commercial Property”, published in 2011. However, the facts of this case were unusual and landlords should expect the courts to continue to react cautiously to requests to change lease terms. Allyson ColbyProperty Law Consultant
