The landmark decision in S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62 will be seared into the memories of lawyers specialising in landlord and tenant work. The tenant, a company specialising in antique tapestries and textile art, had applied for a new business tenancy of premises in The Cavendish Hotel in London. But the landlord sought possession on the ground that it intended to make alterations to the property when the lease ended – even though the alterations were, to all intents and purposes, commercially and practically useless. The landlord gave the court a written undertaking that it would carry out the work. But the Supreme Court decided that it would not have planned the work if the tenant had been willing to vacate. So the tenant was entitled to renew its lease.
The landlord subsequently agreed to grant the tenant a new 15-year tenancy – the maximum period available under the Landlord and Tenant Act 1954 – with five yearly rent reviews. But the parties were unable to agree a new rent and the landlord had suggested changes to the lease that the tenant was unwilling to accept. So the parties embarked on further litigation, culminating in the county court’s decision in S Franses Ltd v The Cavendish Hotel (London) Ltd [18/06/2021].
HHJ Parfitt applied the House of Lords’ decision in O’May v City of London Real Property Ltd [1983] 2 AC 726; [1982] 261 EG 1185, that the burden of persuading the court to approve changes to the bargain represented by an existing lease is on the party proposing it and that the court should allow changes only if it is satisfied that fairness requires them. Consequently, he rejected all the new provisions suggested by the landlord – save for an amendment eliminating a possible ambiguity in the insurance provisions (which did not qualify the landlord’s obligations in any way).
The parties agreed that the rent assessment should be based on the zoning methodology described in Marklands Ltd v Virgin Retail Ltd [2003] EWHC 3428 (Ch); [2004] 2 EGLR 43.
There was now a cluster of vacancies within the immediate vicinity of the property and, after discounting the rent to reflect certain restrictions in the lease and the 12-month rent-free period that would have been available for a hypothetical new letting (comprising a conventional three-month fitting out discount and a nine-month incentive discount), the judge settled on a new rent of £102,000 pa – which was considerably lower than the passing rent in the sum of £220,000 pa.
The judge was also asked to determine the interim rent that it was reasonable for the tenant to pay while the tenancy had continued by reason of section 24 of the 1954 Act. On the evidence before him, the market rent for a tenancy from year to year as at 3 January 2016, when the current lease had expired, was £140,650. But this was too low for the first 3.5 years of the occupation because of the difference between it and the passing rent and the evidence about the market value of properties in the vicinity over that time. So the judge finally settled on the figure of £160,000 pa.
The judgment will interest landlords and tenants not only because the decisions on rent and interim rent were made in the context of the current pandemic, but also because it wraps up a contested lease renewal that made legal history.
Allyson Colby is a property law consultant
