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Pandemic Rent Suspension Clauses and the 1954 Act

While the subject of much work behind the scenes in law firms up and down the country, it’s relatively rare for unopposed lease renewal cases under the Landlord and Tenant Act 1954 (the “1954 Act”) to actually be heard by the Courts. The decision of the County Court in WH Smith Retail Holdings Ltd v Commerz Real Investmentgeselleschaft MBH, and the commentary of the trial judge on pandemic rent suspension clauses, will therefore be of interest to tenants and landlords alike.

Delay in the County Court

One might suspect that one of the reasons that unopposed lease renewal cases rarely reach Court is delays that parties often experience in waiting for their cases to be heard – it wasn’t unusual in pre-Covid times for parties to wait 18 months or so from the issue of proceedings until a hearing took place, and Covid related delays risk extending that time frame even further.

That delay played to the advantage of WH Smith, as it was over two and a half years from the date on which it served its s26 request for a new tenancy of its store in Westfield, Shepherd’s Bush until the case was heard by the County Court. In the meantime, the Covid 19 pandemic had hit and many tenants had begun seeking pandemic rent suspension clauses. The delay in the hearing of the case allowed WH Smith to seek such a clause in its renewal lease of its store at Westfield.

What does the law say the terms of the new tenancy should be?

Under s35 of the 1954 Act, the terms of a new tenancy can be agreed between the parties, or in default of agreement, they will be determined by the court (having regard to the terms of the current tenancy and all relevant circumstances). As clarified in the case of O’May, it is common ground that the burden of persuading a court to change the terms is on the party proposing the change.

And what should the terms of a pandemic rent suspension clause be?

WH Smith’s store in Westfield had actually stayed open throughout the pandemic, because it included an “essential” post office. However, its footfall had nonetheless been seriously hindered, because footfall to the shopping centre had dropped so dramatically.

By the time trial started, the parties had agreed that following the issues of the last year it was reasonable that the renewal lease should include a rent suspension clause, and that if the clause was triggered, the tenant would only pay 50% of the rent for the suspension period. They couldn’t agree however when it would be triggered.

The landlord proposed that if the tenant was required compulsorily to cease trading, the rent would be reduced by 50%. The tenant said that the rent suspension provisions should apply if non-essential retail was ordered to close for specified reasons (such as a pandemic), i.e. even if it did not have to shut, as an essential retailer. It argued, and the court agreed, that the burden on it staying open when the shops around it were all closed was significant. Allowing it to stay open was only a “notional” advantage.

The county court trial judge held that because the parties were agreed that there should be a change to the lease, WH Smith did not bear the burden of persuading the Court to change the terms to accommodate its proposal.

The judge was also asked to determine the rent payable under the renewal lease, and commented that if there had been no pandemic rent suspension clause, a 10% discount on the rent payable would have been appropriate.

Takeaway points

Following this decision, landlords might expect their tenants to be persistent in seeking a pandemic rent suspension provision, or otherwise risk being forced to agree a (perhaps further) rental discount. The businesses of many tenants and landlords have of course suffered significantly over the course of the last year. If pandemic rent suspension clauses are moving towards becoming a new normal in the market, there is even more cause for landlords to hope that the lockdowns of the past year are now a thing of the past.

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