Section 35 of the Landlord and Tenant Act 1954 requires the court to consider the provisions of the current tenancy, as well as all relevant circumstances, when parties are unable to settle the terms of new business tenancies between themselves.
However, surprisingly few reported cases deal with what is, and is not, acceptable when seeking to modernise a lease. Consequently, the decision in WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft mbH [Winchester County Court, 25 March 2021] will interest practitioners – not least because the dispute concerned a pandemic rent suspension clause and service charge provisions dealing with energy efficiency and performance, which were to be included in a lease of retail premises at the Westfield London shopping centre in Shepherd’s Bush.
The parties had agreed that if the new rent suspension clause were to be triggered, the tenant would have to pay 50% of the rent and the whole of the service charge, and that the tenant would have to account for any sums received from the government by way of subsidy or support in respect of rent.
However, they were unable to agree on a trigger. The landlord proposed that the trigger should be compulsory cessation of trading. But the tenant operated a post office and its arrangements with the Post Office had required it to keep the shop open to provide essential postal and banking services through the current pandemic (even though footfall was seriously affected and most retailers in the shopping centre had closed). Therefore, the tenant suggested that the rent suspension clause should operate when non-essential retailers were unable to open.
The judge accepted that matters might be different on the high street. But the reality in Westfield was that, if non-essential retailers surrounding the tenant were closed, there was no advantage to the tenant in remaining open. Consequently, the judge approved the trigger suggested by the tenant.
The landlord also sought to modernise the service charge provisions in the lease. One such change that the landlord was proposing would, so the tenant claimed, enable it to recover the costs of energy audits and steps taken to improve energy efficiency and of obtaining energy performance certificates when letting or renewing the lease of any unit.
The tenant argued that these were costs that the landlord should cover. Energy performance certificates are required to let or sell property and are not related to property maintenance. Furthermore, any works to audit or improve energy efficiency were refurbishment/upgrade works that would benefit the landlord, as the long leaseholder of the shopping centre.
The judge observed that there must be a good reason for the court to impose a term not in the current lease against the will of either party, and that the burden of persuading the court to change the terms is on the party proposing the change: O’May v City of London Real Property Ltd [1983] 2 AC 726; [1982] 261 EG 1185.
The landlord had claimed that the provisions contained nothing new – in which case there was no point in including them, unless they would provide clarity and prevent disputes. But they did nothing of the sort; they were opaque, in intent and scope, and were likely to cause litigation. It was insufficient for the landlord to argue that it was obliged to comply with the principles of good estate management, and the judge was not convinced that the change was fair and reasonable. Therefore, he declined to allow the landlord to include the suggested provisions in the new lease.
Allyson Colby, property law consultant
