Back in August 2021, we wrote about how the Courts were likely to deal with the issue of renewal rent during commercial lease renewal proceedings in light of the Covid-19 pandemic. Further guidance has now been given in the recent County Court case of Saville-Edells & Saville-Edells v Jan.
In April 2019 (which was of course pre-pandemic), a claim had been issued to determine the outstanding terms of the tenant’s renewal lease which, predominantly, centred around the rent to be set for the new lease and the level of interim rent to be paid on premises situated on the high street. Whereas originally the claim was due to be heard in April 2020, this was adjourned due to the pandemic and eventually went to trial in October 2021. The judgment was handed down on 15th December 2021.
At the time of issue, the Landlord was seeking a new rent of £50,000.00 per annum whereas the Tenant was seeking a new rent of £32,500.00 per annum. However, by the time that the expert reports were exchanged, these sums had been revised down to £45,000.00 and £25,125.00 respectively.
What did the County Court decide?
At trial, Deputy Regional Tribunal Judge Martyński (sitting as a Judge of the County Court) was asked to consider:
- Pre-Covid (2019) rents;
- Peak-Covid (2020) rents; and
- More tentatively, (possible) Post-Covid rents during any recovery in 2021.
Clearly, both pre and peak-Covid rents would be relevant in deciding the question of interim rent, with the current and/or forecast rents being relevant in deciding the question as to the “new” rent to be paid under the renewal lease.
Perhaps unsurprisingly, the parties’ experts adopted quite polarised positions. On the one hand, the Landlord’s expert argued that Covid had not had much (if any) impact on the high street retail sector at all. The expert’s rationale for this argument was that, unlike with larger shopping centres, since people had “stayed local” the high street stock had faired rather well during the pandemic. In contrast, the Tenant’s surveyor had argued that the pandemic has had (and would continue to have) a lasting detrimental impact upon the rental values on the high street.
On balance, the Judge agreed with the expert evidence of the Tenant’s surveyor, saying that:
“…I do not consider [the landlord’s surveyor’s] argument is sufficiently strong to dissuade me from the intuitive, view that the Pandemic has had a depressive effect of rents. [His] reliance on the figures from his comparable analysis depends on his analysis, some of which I reject… Whilst I accept that different areas may well be affected by the Pandemic, I agree with [the tenant’s surveyor] that there must still be considerable uncertainty amongst retailers and prospective retailers as to what the future holds for them.”
Based upon the above and, in the Judge’s words, the production of “by far the best comparable” evidence as to what the new rent should be, set the new rent at £28,350.00 per annum. As it happens, the “best comparable evidence” to which the Judge referred related to a property which:
- Was close to the subject property (in fact it formed part of the same building);
- Had a transaction from December 2020 (i.e. post-declaration of the pandemic when the market uncertainly would have been evident); and
- Was of a similar size to the subject property.
As to interim rent, the Judge also favoured the Tenant’s surveyor’s view that the two years over which the proceedings had run could be “blended” to create the appropriate figure which, in the Judge’s view, was £30,550.00.
This case underlines the importance of expert evidence in lease renewal proceedings but also demonstrates (as the extract of the judgment sets out above) that the Courts are willing to take an “intuitive” view as to what the markets are actually doing (in respect of both the “new” and “interim” rent).
As it happens, the Judge was most persuaded by the evidence relating to a property in close proximity to the parties’ property, which was subject to a transaction at (perhaps) the height of the uncertainly as the country headed towards Christmas 2020, which then led to a very long third lockdown.
The case is also an important example of the Court being willing to depart from the “starting point” for the setting of interim rent under Section 24C(2) of the Landlord and Tenant Act 1954 if the interim rent would “differ substantially” from the new rent. Indeed, we made the point in our article from August 2021 that the interim rent should be set at what is “reasonable for the tenant to pay”. This decision seems to confirm that view.
How can we help
At Nelsons, we are well-placed to provide sound advice to those who are considering such arrangements in their new lease. For advice concerning a lease renewal dispute, please contact Oliver or another member of the team on 0800 024 1976 or via our online form.
If you have a query that does not relate to a lease renewal dispute, please contact Martin Jinks (Consultant Solicitor and Notary Public), Ben Cox (Associate and Solicitor) or another member of our expert Commercial Property team for advice.Contact us