Summary: A recent case shows how crucial expert evidence is in business lease renewal proceedings under the Landlord and Tenant Act 1954.
In Flanders Community Centre Ltd v Newham London Borough Council (2016) the tenant was able to secure a rent of only £1 per year in its claim for a new lease under the Landlord and Tenant Act 1954 ("the 1954 Act")
This was largely because the landlord was unable to submit sufficient evidence to persuade the trial judge that the passing rent of £1 payable under the existing lease was not the market rent. The judge’s decision was upheld on appeal.
The rent for a community centre was £1 a year under the original lease, which reflected the poor state of repair of the building. A survey suggested that £14,300 of repairs were needed, and the original lease provided that if the tenant did not carry out the repair works within a year, the rent would increase to £1200.
The tenant was also obliged to monitor the use and membership of the community centre, and the local authority could take action for any imbalance or discrimination. This was an unusually onerous term, and another reason why the rent was so low.
The tenant applied for a new lease under the 1954 Act after its lease expired. The parties couldn't agree terms so the tenant issued proceedings to ask the court to decide them.
The landlord asked for a new rent of £16,000 a year. The tenant said the rent should be the same as the passing rent of £1 per year. The landlord and the tenant both put in expert evidence to the court.
The judge sided with the tenant and fixed the rent under the new lease at £1 per year.
The judge rejected the landlord's evidence of comparables as unreliable - the lease terms of the landlord's comparables were not available, so the judge could not consider whether they contained onerous terms and what weight should be attached to them.
Without such evidence, the judge attached significant weight to the passing rent of £1.
On appeal, the court said that the judge had been entitled to fix the new rent at £1 per year, based on the evidence submitted.
The judge could decide what weight should be attached to the passing rent, which both parties agreed was a relevant factor in determining the market rent.
The High Court held that it was irrelevant that the landlord’s expert seemed to incorrectly assume at trial that the new lease contained the same onerous terms as the original lease (in relation to the tenant's obligation to monitor the community centre use and membership). The new lease did not contain those terms but nobody pointed out the expert’s mistake to the judge.
The landlord tried to raise new arguments on appeal that the rent should have been £1,200 because the tenant had not carried out the repair works. The issue had not been raised at trial and the High Court did not let the landlord have a second bite of the cherry on appeal. The trial judge had been entitled to assume that the works had been undertaken and to therefore take £1 as the actual passing rent, especially where neither party had argued otherwise.
If you fail to prepare, prepare to fail.
Any party should ensure its litigation armoury is fully loaded at the first hearing in 1954 Act claims, so that the best possible terms can be obtained for the new lease.
The passing rent can be given significant weight so expert evidence will be crucial if you want to persuade the court that the market rent is different.