Manchester County Court
District Judge Khan
18 October 2013
Lease – Renewal – Rent payable – Claimant tenants seeking renewal of commercial lease at end of term – Defendant landlords not opposing grant of new lease but parties failing to agree terms – Whether inclusion of “insurance rent” provision being appropriate in new lease – Amount of rent payable under new lease – Whether interim rent differing substantially from relevant rent – Ruling in favour of defendants
The predecessors of the claimant tenants took a lease of a Grade 2 listed building of late Georgian or early/mid-Victorian construction which was part of a terraced block occupied mainly by professional services firms. It comprised a basement, ground, first and second floors. The term of the lease was for a period of 21 years from 24 June 1985. The rent payable was originally £8,500 per annum but was reviewed and increased to £10,000 and then £15,500 per annum in June and 1990 and July 2000 respectively.
Following the expiry of the lease, the claimants held over on a continuation tenancy under part II of the Landlord and Tenant Act 1954. The defendant landlords subsequently served a notice under section 25 of the Act bringing the tenancy to an end. By the notice, the defendants informed the claimants that they did not oppose the grant of a new tenancy which the claimants then applied for.
The parties were unable to agree a number of terms of the new lease. The principal dispute was whether the lease should contain an “insurance rent” provision. Additionally, the parties were unable to agree either the amount of rent payable under the new lease or the amount of the interim rent. The court was asked to determine those issues.
Held: A ruling was made in favour of the defendants.
(1) The court had a complete and very wide discretion, having regard to the infinitely varying circumstances of individual leases, properties, businesses and parties involved in business tenancies throughout the country but it had to begin by considering the terms of the current lease. The burden of persuading the court to impose a change in those terms rested on the party proposing the change. In the circumstances of the case, the change had to be fair and reasonable and take into account, amongst other things, the comparatively weak negotiating position of a sitting tenant requiring renewal, particularly in conditions of scarcity, and the general purpose of the Act, which was to protect the business interests of the tenant so far as they were affected by the approaching termination of the current lease, especially as regards the security of tenure. There had to be a good reason for the court to impose a new term, not in the current lease, by either party on the other against his will. The court also had to consider whether the proposed change involved a substantial shift in the basic parameters of the commercial arrangement between the parties: O’May v City of London and Real Property Co Ltd [1982] 1 EGLR 76; (1982) 261 EG 1185 and Edwards & Walkden (Norfolk) Ltd v City of London Corporation [2012] EWHC 2527 (Ch); [2012] PLSCS 188 applied.
(2) Even taking into account the fact that the defendants’ proposal had included a term that any renewal would be on the same terms as the original lease, the imposition of an insurance rent provision in the new lease was not a substantial conceptual or financial shift in the basic parameters of the arrangement between the parties. In the light of the effectively unchallenged evidence of the defendants’ expert witness, there was no good reason not to accept that the original lease was very old and out of line with modern practice so that some modernisation was inevitable. The imposition of such a term was a fair and transparent way to approach that item of expenditure incurred by the defendants as landlords. A percentage approach had the potential for conflict or disputes on any rent review, where the question of insurance rent was not dealt with by way of separate provision but by way of percentage increase in the rent.
(3) In the light of the opinion of the defendants’ expert, based upon an analysis of comparable properties, the passing rent would be fixed at £22,320 per annum.
(4) The defendants were entitled to interim rent while the tenancy continued pursuant to section 24 of the Landlord and Tenant Act 1954. Since the defendants had shown to the satisfaction of the court that the interim rent under section 24C(2) differed substantially from the relevant rent, the interim rent would be £37,556 per annum, as calculated by the defendants’ expert.
David Partington (instructed by Clough & Willis, of Bury) appeared for the claimants; Andrew Latimer (instructed by Pannone, of Manchester) appeared for the defendants.
Eileen O’Grady, barrister
