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. And the House of Lords’ decision in O’May v City of London Real Property Ltd [1983] 2 AC 726; [1982] 261 EG 1185 established that the burden of persuading the court to approve changes to the bargain represented by an existing lease is on the party proposing it. The court should allow changes only if it is satisfied that fairness requires them.
In WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft mbH [2021] PLSCS 68 the county court settled a dispute about the trigger for a pandemic rent suspension clause that was to be included in a new business tenancy. But it did not have to decide whether the clause should be included at all, because the landlord had conceded the point. The position was rather different in Poundland Ltd v Toplain Ltd [Brentford County Court, 7 April 2021]. The parties had agreed that the tenant was entitled to a new business tenancy of premises in Twickenham, for a term of five years without a break, but had been unable to finalise the terms of the new lease.
The tenant wanted to include a rent suspension clause in its new lease, which would reduce the annual rent by 50% during any future lockdowns, and claimed that this was in line with clauses agreed by other landlords and tenants during the previous 12 months. But the court ruled that the tenant was seeking to halve its liability to pay rent while circumstances made it difficult to trade, even though the landlord had no control over the risk against which the tenant was seeking to protect itself. The tenant may be able to take advantage of any government reliefs or schemes that might be made available and it was not the purpose of the 1954 Act to reallocate risks between the parties or to protect or insulate tenants, other than by allowing them to continue their businesses when their leases ended.
Consequently, it would not be fair and reasonable to impose the clause on the landlord – or to make a similar amendment to the service charge clause. Any service charges due were likely to relate to costs and expenses for which the landlord remained liable. And, if the landlord had no such liability, no service charge demand would follow.
The court also rejected a proviso preventing the landlord from forfeiting during a lockdown because this would significantly alter the existing commercial balance between the parties, and a proviso relieving the tenant from complying with the insurer’s requirements during lockdown. Such requirements were potentially irrelevant to the fact of a lockdown itself and relieving the tenant from compliance could put the entire insurance cover at risk. It might have been appropriate to relieve the tenant from compliance that would be impossible or that would breach any government legislation in relation to a future lockdown period. But that was not what was being suggested.
The judge refused to allow rental payments to be made in arrears, declined to cap the service charge and rejected other changes proposed by the tenant. But he did approve an amendment requiring the landlord to meet the cost of any works required as a consequence of the Domestic Minimum Energy Efficiency Standard Regulations 2018.
Allyson Colby is a property law consultant
