Lawbite: Pandemic linked lease provisions and lease renewals

Poundland Limited v Toplain Limited (County Court)

Brentford County Court recently considered whether a renewal lease granted pursuant to Part II of the Landlord and Tenant Act 1954 (the “1954 Act”) should include, amongst others, new provisions suspending rent, and restricting forfeiture, during future lockdowns.

In its decision the court highlighted that it was not the purpose of the 1954 Act to reallocate previously negotiated risks between the parties or to protect or “..insulate tenants against commercial and trading risks they may face in a way that would either prejudice the landlord or interfere with their long term interest”.

Poundland, as tenant, applied to the court for a new lease of its premises at King Street, Twickenham. The parties had agreed on the term (5 years with no break), rent (payable monthly) and interim rent. 

The parties could not, however, agree on a number of new provisions which Poundland sought to introduce.  Of particular interest were the following:

Rent Suspension:

The court rejected a clause which would automatically reduce rent and service charge by 50% upon the coming into force of a government imposed ‘use prevention measure’ (“Lockdown”). Such a term would require the landlord to share risks which it had no control over when the tenant could have available to it, from the government, access to reliefs or schemes.

Poundland had claimed that such rent suspension provisions were now commonly agreed in the market and referred to another recent lease renewal case, being WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellshaft MBH (see our lawbite on the case here).  However, that case was not binding on the court (being decided at county court level) and, in any event, the tenant there did not have the burden of persuading the court to change the lease to include a rent suspension provision as the parties were agreed on the principle of such a clause (but not the trigger for the operation of it). 

Forfeiture:

The court similarly refused a variation of the existing forfeiture clause whereby the landlord was restricted from forfeiting the lease during any Lockdown. The balance between the parties would be significantly affected if the landlord was restricted from forfeiting during a Lockdown. Again, the potential availability to the tenant of government reliefs or schemes was also relevant.

Compliance with The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the “MEES Regulations”):

The court agreed to a provision expressly requiring the landlord to cover the costs of any works required by the MEES Regulations to bring the property up to energy efficiency standard. 

The MEES Regulations place restrictions on landlords letting (or continuing to let from April 2023) property that does not meet the relevant energy efficiency standard (unless exempted).  They do not expressly, however, place a positive obligation on landlords to carry out any works to bring a property up to that standard.  Landlords could choose not to let (or continue to let after April 2023) or face penalties.  Whilst the precise new wording proposed was not set out in the judgment, there is a suggestion that the wording does nothing to alter the position as it already stands.  In fact, the landlord had argued that the addition was unnecessary as the clause in the lease dealing with statutory obligations (and presumably the MEES Regulations themselves) already dealt with the position. However, the court held that the addition added clarity and was therefore an appropriate and reasonable variation to the terms of the existing lease.

Key points

• many of the provisions were proposed by Poundland in reaction to the uncertainty caused by the pandemic and with a view of reallocating risk in the event of any future disruption, the court was clear, however, that this was not the purpose of the 1954 Act
• the court also rejected the tenant’s claim for the new lease provisions relieving the tenant from complying with the insurer’s requirements during any Lockdown, that rent be paid in arrears and a cap on service charge. With the latter is said that “to introduce an artificial cap in this way could affect the position the parties negotiated when agreeing the current terms”
• in deciding the terms of a new tenancy, other than rent, the court must have regard to the terms of the existing tenancy and to “all relevant circumstances”.  The exercise of this discretion was clarified in the 1983 case of O’May v City of London Real Property Co Ltd
• this is a County Court decision and as such may be persuasive but is not binding on future cases