The correct approach to assessing the rent payable by a special purchaser under a business lease is not to increase a valuation by a specified percentage but to determine the outcome of a negotiation between a willing landlord and willing purchaser.
In BMW (UK) Ltd v K Group Holdings Ltd (claim no K10CL172), the Central London County Court considered the terms of a new lease of a car showroom under the Landlord and Tenant Act 1954.
The case concerned four leases of the ground floor and basement of Aldford House on Park Lane, London, occupied by the claimant as a single car showroom with ancillary office space since 2006. It was agreed that the leases should be for 10-year terms but the rents payable and whether there should be a landlord’s break clause were not agreed.
KGH sought a right to determine one of the leases on six months’ notice from the second to the fifth anniversaries of the term, intending to occupy the holding for the purpose of a business to be carried on by them under section 30(1)(g) of the 1954 Act.
The court had to strike a balance between providing the tenant with reasonable security and not preventing the landlord from recovering possession if a statutory ground could be proved.
KGH believed that BMW may relocate and it could run a car-based business from the property itself, but the court found its evidence vague and unsupported by anything other than the witness’s say-so. It was insufficient to satisfy the evidential test.
Loss of the unit in question would mean the showroom would not make practical or commercial sense for BMW, which supported the decision not to allow a landlord’s break clause.
As for the annual rents, the parties were a long way apart: the tenant argued for £810,600, the landlord for £2,347,500. The principles to be applied to determine the rent under section 34 of the 1954 Act were not in dispute.
The holding must be valued as it was in reality at the commencement of the new tenancy. The fact that premises have a particular value to the occupier of adjoining property who would pay more than anyone else is a factor to be taken into account, but it was wrong to assess value to an ordinary bidder and add a special purchaser uplift.
The valuation was a question of “higgling” in negotiation. Where the parties’ agreement would end up depended on the strengths of their respective arguments. The court determined the annual rent at £1,411,956.
Louise Clark is a property law consultant and mediator
