Where a landlord and tenant are disputing the terms of a statutory lease renewal, Flanders Community Centre Ltd v Newham London Borough Council  highlights the need to produce sound expert evidence and plead cases thoroughly at trial.
A tenant took a 7 year lease of a council property to use as a community centre, at an annual rent of £1. The property was in poor condition and the tenant was obliged to carry out works within 1 year of the lease commencing. If the works were not completed within this time, the rent would increase to £1,200 pa. The lease also contained onerous terms relating to the property's use as a community centre which allowed the landlord a high degree of control.
The lease had protection as a business tenancy under the Landlord and Tenant Act 1954 (the 1954 Act). On expiry of the lease the tenant remained in occupation and the parties sought to negotiate new lease terms. They could not agree the rent that would be payable and the tenant issued proceedings.
The tenant initially proposed a new rent of £1,200 pa with a rent concession on commencement but later changed its claim to propose £1 per year. The landlord wanted £23,000 per year. Each party appointed experts but it was difficult to find comparable evidence considering the nature of the property and the original lease terms, which were unusual.
The tenant's expert thought the property had no market value and suggested £1 per year whereas the landlord's expert suggested £16,000 per year. The tenant's expert took irrelevant factors into account, such as the tenant's ability to pay a higher rent, whereas the landlord's expert sought to rely on the rents paid for other community centres without actually having access to the terms of their leases.
It appeared that the rent of £1 had been the only rent ever paid, despite the required works not having been done. No-one argued that the passing rent was anything other than this. The experts assumed the works had been done because only £1 was being paid and this had not been corrected.
Section 34 of the 1954 Act says the rent will be 'determined by the court to be that at which, having regard to the terms of the tenancy (other than those relating to rent), the holding might reasonably be expected to be let in the open market by a willing lessor' subject to certain statutory disregards.
On this basis, the County Court decided that the rent should be £1 per year. It thought both sides' expert evidence was inadequate. Given there was no evidence as to current market rent, the court thought the rent should not change.
The landlord appealed. On appeal it tried to raise new arguments that the rent should have been £1,200 as the tenant had not carried out the repair works.
The High Court dismissed the appeal. Under Civil Procedure Rule 52.11(3) an appeal could only be allowed where the lower court decision was wrong, either because of an error of law or because a serious procedural error had taken place.
No serious procedural error had taken place. As to an error of law, the High Court found the County Court had been entitled to reach the decision it had on the evidence and arguments presented to it, namely that it had no reliable evidence of the current letting value of the property.
Both parties' experts agreed that the passing rent was a relevant factor. The county court was therefore entitled to place weight on the current passing rent. The court could have calculated the new rent by assessing what evidence was available to value the specific factors that made the original lease different from other leases in the market. However it was not obliged to do so in the absence of help from the parties and the court had not been given any information on those points of difference; it therefore could not ascertain what discount might be suitable for those points.
The High Court emphasised that it was important to remember that "the trial is not a dress rehearsal for some second round" and the parties could not raise new arguments on appeal as to questions of fact.
- The case is a reminder of the need to prepare cases properly and produce suitable expert evidence in relation to proposed lease renewal terms.
- Experts and counsel should be given thorough instructions; they should be made aware of all the circumstances of the matter. A careful review of any reports and supporting evidence should be carried out.
- Where rent is concerned, evidence needs to be given as to the nature of the property and how the original lease terms compare to others in the market. If comparables are not available, evidence should be brought as to how to value specific factors e.g. how much discount would apply to a restrictive user clause.
- Finally, all points need to be made and evidence brought at the original trial; an appeal will not be a re-trial.