LEASE RENEWALS MAXIMISING YOUR POSITION TO PROTECT THE FUTURE Kirsty Black & Ruth Clare www.shoosmiths.co.uk
Topics • Ground F opposition • MEES • Length of term • Fixtures and fittings • Rent free periods • Rights being granted • Interim rent • Accelerating the deal • Getting out
Ground f – what now? • S'Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 QB
Ground f – what now? Ground f: "... on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof that he could not reasonably do so without obtaining possession of the holding …”
Voting time…. Renewal lease Landlord successful
Answer……
Ground f – conclusion • What, not why • Honest intention/undertaking to the court • No anti-avoidance provisions • Update: appeal to Supreme Court to be heard in 2018
MEES • A quick recap • The landlord’s or the tenant’s problem?
Voting time…. No Yes
Answer……
mees • Landlord’s works • Tenant’s works • At whose cost? • Alterations
Length of term • Iceland Foods Limited v Castlebrook Holdings Ltd (2014)
Length of term LANDLORD tenant 15 years 5 YEARS £182,350 £37,500
Voting time…. 5 Years 10 Years
Answer……
LENGTH OF TERM • Judgement held; • 10 year term • £63,000 per annum • Points to note: • Hot-tubbing the experts • Comparable market evidence – not arbitrations and court orders • Striking a balance • View – a case capable of challenge
fixtures • Careful consideration required • What does the law say? New Zealand Government Property Corporation v HM & S Ltd [1982]
Voting time…. Tenant entitled to Tenant not entitled to remove remove
Answer……
fixtures • What the law says • Protecting yourself in the lease • Impact on rent
Rent free and breaks • Britel Fund Trustees v B&Q PLC [2016]
Rent free and breaks • Passing rent: £20psf • Landlord: £18.90psf (£698,500) • Tenant: £7.60psf (£281,000) • Mutual break clause agreed – landlord intended to redevelop
Rent free and breaks Section 34 Landlord and Tenant Act 1954: “ The rent payable under a tenancy … shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court to be that at which, having regard to the terms of the tenancy (other than those relating to rent), the holding might reasonably be expected to be let in the open market by a willing lessor, there being disregarded — (a) any effect on rent of the fact that the tenant has or his predecessors in title have been in occupation of the holding, (b) any goodwill attached to the holding by reason of the carrying on thereat of the business of the tenant (whether by him or by a predecessor of his in that business), (c) any effect on rent of an improvement to which this paragraph applies, (d ) [licensed premises]… ”
Voting time…. Yes No
Answer……
Voting time…. 15% 25%
Answer……
Rent free and breaks What have we learnt? • Rent free periods can be awarded • Early breaks for the landlord have a negative impact on rent • Comparable evidence is key • Parties should seek to agree likely tenant
Rights granted Inspections – let’s start with a question:
Voting time…. Always Sometimes
Rights granted
Interim rent
Voting time…. 2 4
Answer……
VALUATION 1 Section 24C (1)This section applies where — (a) the landlord gave a notice under section 25 of this Act at a time when the tenant was in occupation of the whole of the property comprised in the relevant tenancy for purposes such as are mentioned in section 23(1) of this Act and stated in the notice that he was not opposed to the grant of a new tenancy ; or (b) the tenant made a request for a new tenancy under section 26 of this Act at a time when he was in occupation of the whole of that property for such purposes and the landlord did not give notice under subsection (6) of that section ,and the landlord grants a new tenancy of the whole of the property comprised in the relevant tenancy to the tenant (whether as a result of an order for the grant of a new tenancy or otherwise). (2)Subject to the following provisions of this section, the rent payable under and at the commencement of the new tenancy shall also be the interim rent.
VALUATION 2 “Market differs substantially” (3)Subsection (2) above does not apply where — (a) the landlord or the tenant shows to the satisfaction of the court that the interim rent under that subsection differs substantially from the relevant rent; or (b) …. (4)In this section “the relevant rent” means the rent which (in default of agreement between the landlord and the tenant) the court would have determined under section 34 of this Act to be payable under the new tenancy if the new tenancy had commenced on the appropriate date (within the meaning of section 24B of this Act).
VALUATION 2 (5)The interim rent in a case where subsection (2) above does not apply by virtue only of subsection (3)(a) above is the relevant rent. (6) … (7) … , but otherwise subsections (1) and (2) of section 34 of this Act shall apply to the determination as they would apply to the determination of a rent under that section if a new tenancy of the whole of the property comprised in the relevant tenancy were granted to the tenant by order of the court and the duration of that new tenancy were the same as the duration of the new tenancy which is actually granted to the tenant.
VALUATION 3 “Terms differ substantially” (3)Subsection (2) above does not apply where — (a) …; or (b) the landlord or the tenant shows to the satisfaction of the court that the terms of the new tenancy differ from the terms of the relevant tenancy to such an extent that the interim rent under that subsection is substantially different from the rent which (in default of such agreement) the court would have determined under section 34 of this Act to be payable under a tenancy which commenced on the same day as the new tenancy and whose other terms were the same as the relevant tenancy.(4)In this section “the relevant rent” means the rent which (in default of agreement between the landlord and the tenant) the court would have determined under section 34 of this Act to be payable under the new tenancy if the new tenancy had commenced on the appropriate date (within the meaning of section 24B of this Act).
VALUATION 3 ( 5)… (6)The interim rent in a case where subsection (2) above does not apply by virtue only of subsection (3)(b) above, or by virtue of subsection (3)(a) and (b) above, is the rent which it is reasonable for the tenant to pay while the relevant tenancy continues by virtue of section 24 of this Act. (7)In determining the interim rent under subsection (6) above the court shall have regard — • (a) to the rent payable under the terms of the relevant tenancy; and • (b) to the rent payable under any sub-tenancy of part of the property comprised in the relevant tenancy, • but otherwise subsections (1) and (2) of section 34 of this Act shall apply to the determination as they would apply to the determination of a rent under that section if a new tenancy of the whole of the property comprised in the relevant tenancy were granted to the tenant by order of the court and the duration of that new tenancy were the same as the duration of the new tenancy which is actually granted to the tenant.
VALUATION 4 Section 24D –“Any other case” NB opposed tenancies/renewal of part/no renewal 1)The interim rent in a case where section 24C of this Act does not apply is the rent which it is reasonable for the tenant to pa y while the relevant tenancy continues by virtue of section 24 of this Act. (2)In determining the interim rent under subsection (1) above the court shall have regard — (a) to the rent payable under the terms of the relevant tenancy; and (b) to the rent payable under any sub-tenancy of part of the property comprised in the relevant tenancy, but otherwise subsections (1) and (2) of section 34 of this Act shall apply to the determination as they would apply to the determination of a rent under that section if a new tenancy from year to year of the whole of the property comprised in the relevant tenancy were granted to the tenant by order of the court.
INTERIM RENT And a couple of comments from the point of view of a transactional lawyer …..
Accelerating the deal So whose fault is the delay really ……. the agents or the lawyers?! Getting your ducks in a row 1. Know the property and identify operational issues 2. What lease do you want?
Voting time…. In substance only In form and substance
Answer……
Accelerating the deal 3. What does your current lease say Do you always want to accelerate the deal?
Getting out 1. Section 25/26 served 2. Proceedings issued 3. Order made by the court
QUESTIONS? www.shoosmiths.co.uk
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