COVID-19 has had and continues to have a tumultuous effect on many areas of the retail property market. This is particularly true of lease renewals – how are the courts and tribunals going to determine terms of a new lease given the rapid pace of change and continuing uncertainty?
A recent County Court case (Saville-Edells & Saville-Edells v Jain) put to the test the issue of determining rent and interim rent for a lock up shop in Kensington. Noteworthily, the original claim was issued in April 2019 (pre-pandemic) and was eventually heard in October 2021. At the time of the statements of case, the landlord was seeking a new rent of £50,000 per annum whereas the tenant was seeking £32,500 per annum. By the time that expert reports were exchanged, these figures were revised to £45,000 and £25,125 respectively.
The judge was not persuaded by arguments from the landlord’s expert that the pandemic has not had a depressive effect on rents and imposed a new rent of £28,350 per annum.
The general position with interim rent is that it will usually be the same as the rent under the new lease, although exceptions can be made in limited circumstances – for instance, where there have been substantial changes in the market since the service of a party’s notice or where the terms of the renewal lease are sufficiently different to those of the previous lease. In Charles Russell Speechlys’ article from January 2021, which considered how lease renewal negotiations might change in the wake of the pandemic, it was anticipated that some level of a “cushioning” interim rent might be sought by landlords in a falling market. Some of the courts’ initial decisions on this issue were discussed in our podcast last autumn: Property Patter: post-pandemic lease renewals | Charles Russell Speechlys
As the article, from Falcon Chambers, below explains, in this particular case the court leaned towards the tenant’s approach which was to blend the intervening years together. The court imposed an interim rent of £30,550 per annum.
This case demonstrates the importance of expert evidence in the context of unopposed lease renewals but also indicates that the courts will take an “intuitive” view as to the state of the market. In this case, the landlord’s expert’s use of comparable examples was unpersuasive and those used were considered outdated – instead, the court was persuaded by one particular example of a shop that formed part of the same building as the shop in question, with a transaction that took place at a time reflecting the current market, and is in all other respects similar. Therefore, compelling evidence is likely to be needed to rebut the general view that there has been an enduring impact on the retail sector.
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the Court was faced with a situation where it had to consider pre-Covid values, peak Covid 2020 values, and a possibly recovering or uncertain situation during 2021. 2019 and 2020 were relevant to the interim rent, and the up-to-date situation (or as close to it as possible) would be the basis for the new rent