- County Court case provides retail test case for determination of lease renewal terms
County Court case provides retail test case for determination of lease renewal terms
County Court case provides retail test case for determination of lease renewal terms16th March 2022 - Published by Kuits Property Litigation team
In what is seen as a retail test case, the County Court in Central London has made numerous findings in the case of HPUT Trustee No 1 limited v Boots UK Ltd relating to term length and rental levels in the post-pandemic market.
The case saw the first of a batch of 123 claims between the same parties under Part II of the Landlord and Tenant Act 1954, concerning unopposed business tenancy renewals of a series of leases granted on 22 March 2005. The parties involved in this case were Boots, Quadrant Estates and CarVal Investments, owners of a portfolio of 123 Boot Stores.
The length of term provisions, break rights and the removal of fixed rental increases were all disputed by both sides and were considered by the Court, with particular regard to the current uncertainty in the retail market and the need to protect the Tenant but also give sufficient security to the Landlord.
The key decisions from the case
Having reviewed the case, the court made the decision that when calculating rent under s.34 of the Landlord and Tenant Act 1954, the Court ‘should value on the basis that no-rent free period is allowed’. The landlord had sought a ten-year term with no break, the tenant a three-year term with annual breaks.
The Court also found that given the level of economic and market uncertainty at the time, the trial was at a time when no one knew whether the planned lifting of all restrictions would be a short-lived reprieve from restrictions or not, the Court felt the reasonable balance was a five-year term.
Other key decisions included that:
- A three-year break struck a balance by providing flexibility to the tenant while giving the landlord greater certainty than it previously had;
- There is no market for a stepped annual rent increase;
- No rent review was ordered for a five-year term in this case. On this point, the Judge commented as follows: “Had I come to the conclusion that the appropriate term was ten years then I would have included an upwards only rent review provision at five years because it seems to me that that reflects relevant current commercial practice and would have enabled the parties to re-evaluate the position in accordance with the then prevailing market conditions at that point”.
While it is still relatively uncommon for an unopposed lease renewal to reach a trial, economic uncertainty resulting from the Covid-19 pandemic has changed the Court’s perceptions and decision making in these areas which both Landlords and Tenants should consider.
This is a welcome decision for both retail Tenants and Landlords who will be encouraged by the Court’s acceptance of a requirement of flexibility.
His Honour, Judge Dight CBE said: “In my judgment, the overriding criteria in the current market are the need for the Tenant to have flexibility, given the present economic and market uncertainty, and the need to remain nimble enough to make quick or sudden changes in its operating model nationally and in Bridlington in particular. I have come to the conclusion that what I should do is balance a reasonable period of security for the Tenant with a reasonable period of certainty for the Landlord”.
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