The Impact of Covid-19 on Commercial Lease Renewals

November 3, 2021

 

Negotiating commercial lease renewals under the Landlord and Tenant Act 1954 (“the Act”) has come into greater focus recently, as tenants seek more flexibility following the Covid-19 pandemic. In this article we look at the changing landscape with regards to commercial lease renewals.

Pandemic clauses

Many tenants may now wish to include pandemic clauses in their renewal lease to minimise their exposure in the event that a government enforced lockdown prevents them from trading.

In Poundland Limited v Toplain Limited, the tenant sought to include a pandemic clause preventing its landlord from forfeiting the lease during a lockdown. The landlord argued there was no market precedent for it, and its inclusion would unfairly shift the risk.

Though the Court ruled the tenant had failed to justify the need for a pandemic clause in this instance, Judges are increasingly likely to allow for the inclusion of pandemic clauses provided it can be shown that it would represent a fair and reasonable variation to the terms of the existing lease.

Rent

WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft MBH concerned an unopposed lease renewal in which the parties could not agree on the amount of rent payable.

WH Smith occupied a shopping centre unit, remaining open as an essential retailer during the second Coronavirus lockdown, while all other shops in the shopping centre had been forced to close due to falling sales. Nevertheless, the landlord sought a 10% uplift in rent as it had agreed to the inclusion of a pandemic rent suspension clause.

Under the Act, the Courts are directed to determine the rent payable by considering what a willing landlord might reasonably expect to receive if the premises were to be let in an open market.

Having considered the level of demand as well as the state of the wider retail rental market, the Judge decided in favour of the tenant that that there should be no rent uplift caused by the insertion of the pandemic rent suspension clause, not least because pandemic clauses are now sought by most tenants and the rental market has largely taken this into account.

Interim rent

Franses Limited v The Cavendish Hotel (London) Limited concerned an opposed lease renewal where the amount of interim rent payable was in dispute.

Interim rent is typically set at the same level as the rent under the renewal lease. However, in this instance, the Court was required to assess the level of rent which would be reasonable for the tenant to pay from year to year, as the lease renewal had previously been opposed by the landlord.

An important consideration was that there had been a significant change in the rental market from the date the original tenancy expired in January 2016 and when the claim was heard in 2021, largely owing to the effects of the Covid pandemic.

The Judge considered both the passing rent under the previous lease, set at £220,000 per annum, and the new rent of £102,000 per annum. The Judge ultimately sought to strike a balance between the tenant and landlord’s interests and set the interim rent at £160,000 per year.

What does the case law tell us about the Court’s approach to these commercial lease renewal issues?

These judgments demonstrate the changing landscape with regards to commercial lease renewals. Any proposed variations to a renewal lease must be fair and reasonable in the circumstances. Ultimately, the Court will aim to strike a balance between the interests of the landlord and tenant when determining these types of cases. It is important to take early legal advice before serving any notices under the 1954 Act and consider the changing landscape before negotiating any new terms.

Siôn Fôn is a property litigation solicitor in Darwin Gray’s Litigation team and will be happy to assist both landlords and tenants who are currently engaged/expect to be involved in both contested and uncontested commercial lease renewal proceedings. Get in touch now for an initial free, no obligation conversation.

Email: sfon@darwingray.com

Direct dial: 029 2082 9107

 

 

 

Contact Our Team
Catherine Burke
Partner
View Profile
Damian Phillips
Partner
View Profile
Fflur Jones
Managing Partner
View Profile
Gareth Wedge
Partner
View Profile
Mark Rostron
Partner
View Profile
Nick O’Sullivan
Partner
View Profile
Owen John
Partner
View Profile
Rhodri Lewis
Partner
View Profile
Stephen Thompson
Partner
View Profile

I have worked with Darwin Gray for a number of years and the level of service, professionalism and timely response is second to none. I would highly recommend Darwin Gray to any business.”

Becs Beslee, Dice FM Ltd

Darwin Gray have provided us with a first-class service for many years now. They really take the time to understand our business and develop relationships which results in advice and support that is contextualised and effective.”

Rebecca Cooper, ACT Training

We have worked with Darwin Gray for several years and have always found their services and advice to be first class.”

Karen Gale, Stepping Stones Group

An extremely professional and sincere company who make time for your queries and understand the need to break down certain facts and information to ensure everything is understood perfectly. I would highly recommend the company to anyone looking for any type of legal advice”

Gwawr Booth, Portal Training Ltd

PSS has worked with Darwin Gray for many years. We have always received an excellent service. Prompt and professional advice and support.”

Ledia Shabani, Property Support Services UK Ltd

We have used several departments within DG recently and we have been very pleased with an effective, efficient and down to earth service. Very happy thus far and I expect that we will continue to use DG.”

Guto Bebb, Farmers’ Union of Wales

Darwin Gray offer us truly superb services. Very professional, quick and services available bilingually which is very important to us, highly recommend.”

Iwan Hywel, Mentrau Iaith Cymru

My “go to” in urgent and time sensitive cases for direction, support and advice. The team are quick to respond to calls or emails for advice and support on all matters. Always explain complex matters in a way a lay person can easily understand.”

Margot Adams, Guarding UK Ltd