The Landlord and Tenant Act 1954 applies to the vast majority of commercial property lettings.
The primary purposes of the Act are to extend a tenant’s lease beyond the contractual termination date unless and until certain statutory notices have been served, and (once those notices have been served) to give a tenant of business premises a right of first refusal to a new lease. If the parties cannot agree between themselves whether the tenant should have a new lease and/or what terms it should contain, then generally a Court will decide those points for them.
If a tenant seeks a new lease then a landlord needs to decide promptly – within two months of the request – whether it agrees in principle that the tenant should be entitled to do so.
The received wisdom is that where a landlord does not oppose the grant of a new lease in principle to its tenant, then the vast majority of subsequent claims are resolved by way of negotiation. In short, very few ensuing ‘disputes’ make it all the way to the courtroom. However, 2021 has been the exception that proves the rule, and we have seen a number of ‘uncontested’ lease renewal judgments reported.
What have they decided and/or told us?
Firstly, does the LTA 1954 even apply? In the case of TFS Stores Ltd v The Designer Retail Outlet Centres (Mansfield) Ltd and others the Court of Appeal gave useful guidance on the process under the 1954 Act, often called ‘contracting out’, whereby a landlord and tenant can exchange certain notices and declarations which - if prepared correctly - have the effect of excluding the operation of the 1954 Act. Unfortunately there are sometimes errors in the contracting out process and in the TFS Stores case the tenant (TFS) argued that a failure to follow the correct procedures for six of its leases meant that those leases were within, not outside of, the protection of the 1954 Act. The Court of Appeal did not agree with TFS’s arguments, and held that on the facts of this case (a) solicitors who were acting on the grant of the new leases had authority to accept service of the necessary notices on behalf of the tenant; (b) that the tenant’s retail director, although not a main board director, had authority to sign the necessary paperwork on behalf of the tenant; and (c) where declarations given by the tenant used formulaic wording which referred to unspecified lease commencement dates (eg where there was to be an agreement for lease) that did not invalidate the contracting out process.
The TFS should be of some comfort to landlords where it appears tenants are trying to gain statutory protection which the parties had previously attempted to contract away.
There were then three cases which considered what new lease terms a Court might order if the parties could not reach agreement as to commercial terms.
In WH Smith Retail Holdings Limited v Commerz Real Investmentgesellschaft MBH  WH Smith is a tenant of a unit in the Westfield Shopping Centre in West London. Of relevance to this case is the fact that WH Smith is a post office and an essential retailer – that is, it had been capable of remaining open for trading throughout the entire period of the pandemic including lockdowns. The landlord and tenant had agreed in principle that the renewal lease should include a ‘pandemic clause’, ie a contractual waiver or reduction in the tenant’s obligations in the case of government intervention by way of further lockdown. The parties could not, however, agree on its precise terms and how it would operate. The Court held that the pandemic clause (which would trigger a 50% rent suspension clause) would operate when other non-essential retailers in the Shopping Centre were forced to close, because the effect of those closures was to reduce footfall, even if WH Smith could continue to trade.
In Poundland Ltd v Toplain Ltd, the tenant sought a pandemic clause in its renewal lease, but the landlord refused. Poundland (the tenant) ran the argument that pandemic clauses were becoming the new normal in commercial lease negotiations, and should be included in its new lease. Nevertheless, the Court sided with the landlord. Its reasoning was that the old lease did not include such a clause, and there is a strong (but not overwhelming) presumption that on a lease renewal the new terms should largely reflect the old lease terms. The judge in this case therefore refused the tenant’s request, holding that it was not the purpose of the Act to ‘protect’ tenants.
Finally, another pandemic-themed lease renewal case was S Franses Ltd v The Cavendish Hotel (London) Ltd, which on its facts is better news for tenants. S Franses is the tenant of a carpet showroom close to London’s Piccadilly. Court cases had rumbled on between this landlord and tenant for a number of years, one of which had been considered by the Supreme Court. This judicial round looked at the impact of the pandemic on the rent payable on renewal of the lease - both the rent under the new lease, and the interim rent between the end of the old lease and the start of the new lease. The interim rent in this case was of notable importance largely because - as a result of the previous litigation – the old lease had contractually expired around 5 years earlier. The judge’s decisions was, taking the evidence of expert valuers into account, that the tenant’s new rent was likely to be less than half the rent payable under the old lease (ie £102,000 per year under the new lease vs £220,000 per year under the old lease) . The Court also decided that the interim rent was to be approximately half way (ie £160,000) between the old rent and the new rent when a number of factors required by the Act were taken into account, chiefly what it was ‘reasonable’ for a tenant to pay in the changing circumstances.
Although much of the recent case law about business tenancies has been driven by the enforced governmental changes arising from the pandemic, the likelihood of an extended period of uncertainty about trading and possible restrictions in wider society mean that the issues raised in the cases above will need to be considered in lease renewals for the foreseeable future.