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Take Two - Pandemic Rent Suspension Clauses and the 1954 Act

In the recent unreported case of Poundland Limited v Toplain Limited, the Court was once again asked to consider whether a pandemic rent suspension clause should be inserted into a new lease on a renewal under the Landlord and Tenant Act 1954.

Unlike the WH Smith/Westfield case where the Court only had to consider the trigger for the rent suspension, here the inclusion of the rent cesser clause was itself in dispute, as well as a number of other Covid related provisions and amendments to the provisions of the existing lease sought by the tenant.

O’May principle

In its judgment the Court relied on the principle established by the House of Lords in O’May v City of London Real Property Co Ltd. When exercising its discretion to incorporate new terms in a renewal lease, the Court must first consider the terms of the current tenancy and the party seeking to depart from those terms must show that the changes are “fair and reasonable”.

The Judge highlighted that the purpose of the 1954 Act is not to “redesign previously negotiated risks” nor to “insulate the tenant against the commercial and trading risk they may face”.

No Covid clause and very limited changes

Applying this principle, the Court rejected the new terms sought by Poundland:

  • Rent suspension clause – Poundland wanted a 50% rent and service charge reduction during a “use prevention measure” (defined to include lockdowns due to Covid-19). The Judge found that it would not be fair and reasonable “to impose on the landlord a sharing of the risk 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”.
  • Indemnity proviso – Poundland sought to impose notice and mitigation obligations on the landlord before it could be entitled to an indemnity from the tenant. The Judge agreed to the notice requirement and early provision of information but rejected the wording seeking to avoid indemnity if any claim could be covered by insurance.
  • Payment of rent in arrears – Poundland claimed this reflected the standard position across its portfolio. But the Judge found this irrelevant and refused to recast the lease and shift the commercial risk.

Relief from compliance with insurer’s requirements during lockdown – The Judge found there was no good reason for such an amendment which could put the entire insurance cover at risk.

  • The Court also rejected a number of other “reasonable modernisation” to existing clauses requested by Poundland including:
  • Removal of the right for the landlord not to rebuild if insurance rent is not paid
  • Removal of the requirement to seek landlord’s consent to alter the rateable value
  • Limiting the requirement to provide an AGA to “if reasonably required”
  • Restricting the landlord’s right to forfeit during a lockdown period
  • Increasing the service charge cap from 2.5% to 10%.

The Judge did however agree to the insertion of a new obligation to for the landlord to meet the costs of any works required to comply with the Domestic Minimum Energy Efficiency Standard Regulations 2018.

Is this the end of Covid clauses?

Covid rent suspension clauses have become a regular feature of lease renewal negotiations. And this decision will be welcomed by landlord as it gives them scope to push back on Covid clauses. However, just like the WH Smith case, this is only a County Court decision, which means that it is only persuasive and not binding and may also be the subject of an appeal. So this may not be the end of the matter.

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