When the terms of a commercial lease cannot be agreed between the parties on renewal of that lease, according to the provisions of the Landlord and Tenant Act 1954, which governs the statutory requirements of a commercial lease, a court can have oversight and decide.
Generally, it is an accepted principle that a commercial lease should be renewed on the same or very similar terms to the existing lease. However, although changes may be imposed by the court, these should not be one that gives either party the ability to rewrite previously negotiated risks.
Section 35 of the Act provides that a Court shall have powers to vary the terms of the current tenancy, taking into account all relevant circumstances.
In the case of Poundland Ltd v Toplain Ltd (2021), the tenant Poundland argued that its lease on renewal should include a clause stipulating that rent should be reduced by half during any 'use prevention measure'. This was taken to include government legislation due to subsequent waves of Covid, changes which Poundland said would 'modernise' the lease.
The high street discount goods retailer argued that such a provision inserted into the lease would be in both parties' best interests - it would allow the tenant to continue to trade and meet its ongoing obligations to the landlord, it claimed.
However, the judge in the case did not agree. The decision went against Poundland to the relief of the commercial landlord community. The County Court refused the tenant's request to include a clause in its business renewal lease which would reduce the rent by half should the government impose further lockdowns.
As authority for its decision in relation to Section 35 of the Landlord and Tenant Act 1954, the court referred to the test case of O'May v City of London Real Property Co Ltd (1983) which established the principle that a court should not sanction a departure from the terms of the current lease 'unless the burden of changing the terms of the current tenancy falls on the party proposing the change' and the change proposed is fair and reasonable.
The landlord Toplain Ltd had argued that there was no market precedent for such a change, an inserted clause that would 'fundamentally change the relationship between the parties.' It argued that any future lockdown would be controlled by government legislation and that 'the proper course for the tenant would be to take advantage of any benefits or grants offered by the Government.'
In his Judgment District Judge Jenkins, presiding at Brentford County Court on 2 July 2021, followed the principles laid down in O'May and refused to sanction the change. The judge said that it would not be fair and reasonable to expect the landlord to share the risk (with the tenant) in circumstances over which the landlord would have no control and where the tenant could avail itself of reliefs or schemes offered by the Government.
District Judge Jenkins said that the case was different from the recent decision in WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft mbH (March 2021) as the parties in the WH Smith case had already previously agreed that a pandemic rent suspension clause should be included in the renewal lease, here the court was simply required to determine the mechanics of how that provision would operate.
The landlord was successfully represented by Ms Cecily Crampin at Falcon Chambers, a barrister regularly instructed by PDT Solicitors.
The Poundland case is a County Court decision without binding effect on future cases, though it does give a guide as to how judges may apply current guidance to changes to commercial leases on renewal - the half rent provision was perhaps too fundamental a change.
The judge concluded that the inclusion of a rent suspension clause would not be fair and reasonable in the circumstances. The principle of varying a commercial lease on renewal in the 1954 Act is not one of the ability to rewrite previously negotiated risks.
That is the case even though the parties had not considered exceptional circumstances when negotiating the existing lease. It would be unreasonable the judge thought to impose a sharing of the risk on the landlord in circumstances over which the landlord would have no control, especially as government reliefs or schemes may gave Poundland some control over the risk during Covid.
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