The Landlord and Tenant Act 1954 requires landlords and tenants to serve notices on each other to terminate/renew business leases. In Dukeminster Ltd v West End Investments (Cowell Group) Ltd [2018] PLSCS 164, the county court was asked whether a section 25 notice, which named a tenant incorrectly, was valid.
The tenant’s underlease had been granted to a predecessor in title in 1967 for a premium and at a fixed rent of £1,000 per annum. It expired at the end of 2016 and the landlord’s solicitors had served a section 25 notice on the tenant, then Dukeminster (UG), accidentally omitting the letters “UG” from its name, proposing a new 12-year tenancy at an initial rent of £475,000 per annum, subject to four-yearly upward only rent reviews.
The tenant claimed that the landlord’s notice was invalid because it named another company in its group as the tenant and served its own section 26 notice on the landlord, hoping (or so the judge inferred) to postpone the interim rent commencement date under its existing lease.
But the Dukeminster companies were closely linked and managed and had the same directors. And the court took the view, a little surprisingly perhaps, that a reasonable recipient would not have been misled or have reasonably doubted how the section 25 notice was to operate, and in respect of which company. Consequently, the judge upheld the landlord’s notice, applying Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.
The tenant had asked the court for a new five-year term but the duration of a new tenancy must be reasonable from the perspective of both parties. The court was unable to derive any help from the length of the original tenancy since it was for a term of 51 years and the tenant had not explained why its interests would be best served by a short new tenancy.
Several of the comparators used for rental purposes were for 10-year terms and the judge took the view that this was the “market norm” for the location. Furthermore, the property was in a prestigious part of London and the lease would be readily assignable, should the tenant wish to relocate.
Consequently, it would be reasonable to order a 10-year term, with a rent review after five years. And, given that the rent payable under the tenant’s existing lease was not subject to an upward only rent review, or to any review at all, the judge decided that it would be fair and reasonable for the reviewed rent to go up or down, in line with market rents in five years time.
The tenant also requested a break clause because the adjacent building, a former embassy, was to be redeveloped as a luxury hotel and it wanted to be able to break its new lease if the work caused a nuisance that became unbearable. But the judge ruled that the developer would have to adhere to local authority regulatory requirements and that a break clause was unnecessary.
Finally, the judge fixed the rent at £290,000 per annum, rejecting the tenant’s claims that the rent would have to be much lower to secure a tenant, thanks to the redevelopment nearby.
The tenant had been unable to cite a single example of a letting with the type or extent of discounting that it was seeking to apply. Indeed, such evidence as there was suggested that the redevelopment work would have no effect on valuation.
Allyson Colby, property law consultant
