Court rejects tenant’s call for pandemic clause in 1954 Act lease renewal

Court rejects tenant’s call for pandemic clause in 1954 Act lease renewal

This article was published on: 19th July 2021

Under the Landlord and Tenant Act 1954, a tenant of a business lease is entitled to call for a renewal of its existing lease at the end of the term.  If the renewal is unopposed by the landlord, the parties have an opportunity to negotiate revised terms; however, if they cannot agree, the court is required to determine what the new terms should be[i].

The court will generally not use its discretion under the Act to depart from the existing terms.  If a variation or new clause is proposed, the party seeking it is required to show that it is a ‘fair and reasonable’ development.[ii]

 

 

In the recent case of Poundland Limited v Toplain Limited[iii], the tenant, Poundland, was seeking a renewal lease.  Following the substantial trading disruption it had suffered during the COVID19 lockdowns, Poundland argued for a ‘pandemic clause’ as part of the renewal.  The clause was designed to protect it in the event of future pandemic-related business interruption.

The clause proposed provided that during any future lockdown, Poundland would:-

  • Not be required to pay the full amount of rent and service charge;
  • Not be required to comply with the insurance covenants under the lease;
  • Be protected from eviction, as the landlord would be prevented from exercising the forfeiture provision.

The burden rested with Poundland to show that this was reasonable and fair. It argued the clause would benefit both parties as in the event it was required to close, it would be more likely to be able to continue trading and retain the lease if it only had to pay a reduced rent.  It also suggested such clauses were becoming more common.

The landlord resisted the imposition of the clause by arguing that there was no established market practice rendering such clauses routine and that inclusion of the clause would materially change the relationship between the parties.

The court, holding in favour of the landlord, agreed that it was wrong to include the clause.  In reaching his view, the Judge stated:-

“…it is not in my view sufficient a reason to impose a sharing of the risk [of a lockdown] in circumstances over which the [landlord] would have no control whilst the [tenant] may have some by reference to reliefs or schemes that might be available to them by the government.”

In an earlier decision this year, WH Smith[iv] secured a new lease which provided that the rent would be reduced if non-essential retailers were required to close.  Poundland attempted to rely on this case, however the court declined to follow the decision on the basis that in WH Smith, the parties had themselves agreed to include a rent reduction clause.  The court had not been asked to decide whether such a clause was fair or reasonable in principle – only what the precise trigger event for the rental reduction would be.

The Judge confirmed that it is “not the purpose of the [Landlord and Tenant Act 1954] to protect or insulate the tenant against the commercial and trading risks they may face” but rather to “allow them to continue their business following the term end.”

Comment

The case is an important one and will be a welcome relief to landlords.  A different decision might have opened the floodgates to tenants insisting that pandemic clauses are now becoming the ‘new norm.’  That is not to say that such clauses cannot, or have not, been agreed, with WH Smith being a widely reported example.  If you are a tenant, reaching agreement with your landlord out of court is most likely going to be the best means of achieving a ‘pandemic-friendly’ lease.

The decision emphasises that it is not the court’s role to protect contracting parties (in particular, the tenant) from commercial risks and this is not the purpose underlying the statutory renewal procedure; however, those risks will be relevant to determining what is fair.  It is interesting that the court anticipated that in the future, government relief schemes would be available to the tenant in the event it was forced to close, which clearly played a pivotal role in the Judge’s decision making.

Having said that, the decision is at county court level and is therefore not a binding authority. In addition, the determination of specific lease terms is often dependent on the facts of each case and the attitudes of the parties involved.  It is unlikely to be the last we hear on the subject.

[i] Section 35 Landlord and Tenant Act 1954

[ii] O’May v City of London Real Property Co. Ltd [1983] 2 AC 726.

[iii] Poundland Limited v Toplain Limited [2021] (unreported)

[iv] WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshar MBH (unreported)

Author: Amy Chadwick, Associate

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