Flanders Community Centre v London Borough of Newham  EWHC 1089 (Ch)
Lease renewal proceedings often focus on expert evidence concerning the applicable market rent. However, where leases contain terms that are onerous and unusual, valuation evidence based on comparable transactions can be difficult to find. In these circumstances, expert witnesses must do everything they can to assist the Court by providing a detailed analysis of the comparable evidence at hand. In this case, the Court found that none of the evidence it was provided with at trial could be relied on to arrive at the correct market rent, which lead to the passing rent of £1 per annum being applied to the new lease. Although the landlord appealed, it was not appropriate for it to obtain a second chance to argue its case, and the original decision was upheld.
This case concerned a community centre in East Ham, London. The centre had been let by the local authority (the “Landlord“) to a community association (the “Tenant“) in 2001. At the time, the premises were in need of repair, owing to damage caused by vandalism, so it was agreed that the rent would be £1 per annum, and that the Tenant would pay the insurance costs and carry out repairs. It was also agreed that the rent would be increased to £1,200 per annum if the works were not conducted.
The lease contained many onerous provisions that enabled the Landlord to retain significant control over the premises, and the Court noted that it was “not at all a usual commercial lease”. For example, the user clause was restricted to the uses set out in the Tenant’s constitution for the community centre, and the Tenant was under an obligation to change the activities run at the premises if the Landlord notified it that these activities “did not properly reflect the local community”.
The lease was originally granted for 7 years and the contractual term expired in 2008. The Tenant remained in occupation pursuant to the security of tenure provisions in the Landlord and Tenant Act 1954 (the “Act”) but terms for a new lease were not agreed. Eventually, the Tenant issued proceedings at Court for the terms of the new lease to be determined.
Expert evidence before the County Court
The trial of the Tenant’s claim was heard in the County Court and the most important term in dispute was the rent that should be payable under the new lease. Both parties relied on expert evidence, but this resulted in a wide gap between the respective valuations.
Owing to the usual nature of the premises, the Tenant’s valuer found no helpful comparable evidence of similar lettings. He therefore sought to rely on the accounts method of valuation, by assessing what income a tenant could expect to achieve at the Premises. However, owing to the terms of the onerous lease, he considered that any activities at the Premises were unlikely to produce a profit. He therefore concluded that the rent should remain at £1 per annum.
The Landlord’s expert came to the view that the rent should be set at £16,000 per annum. He used the comparable method, drawing evidence from four other community centres in London, but he admitted that he had not had a chance to assess the incentives offered to the Tenants as part of those transactions, and that the centres all served different functions.
Ultimately, the Judge concluded that none of the expert evidence was of use to her. The Tenant’s ability or inability to pay a market rent was not relevant, and there was no evidence that the comparables relied on by the Landlord had been discounted to reflect the onerous terms of the subject lease. In review of the evidence, the Judge held that she could only find that the rent should remain unchanged at £1 per annum, and the Landlord subsequently appealed to the High Court.
Section 34 of the Act states that, in the absence of agreement, the rent that shall be payable under the new lease will 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…”.
While the existing rent may provide evidence that assists the Court to determine the market rent on a renewal, the Judge noted that it is not necessarily a good guide to the current rent.
When assessing the Landlord’s grounds of appeal, the Judge also explained the nature of the Court’s role, restating the following principles:
- an appeal Court should not interfere with a trial judge’s findings, unless compelled to do so;
- the trial should not be treated as a “dress rehearsal” for an appeal; and
- the trial Judge would see the “whole sea of evidence”, whereas the appeal Court would merely be “island-hopping”; and
- the trial Judge had not been obliged to give elaborate reasons for her decision or deal with issues not in dispute before her.
The Court held that the trial Judge had been entitled to order the grant of a lease at a £1 annual rent. There was no reliable expert evidence of the market value, and although the sum of the passing rent would not usually be conclusive, it was evidence that both parties had conceded was relevant. While the Landlord might have argued its case differently at trial if it had appreciated that its evidence was lacking in weight, it had not done so, and it was not possible for the trial judge to guess how the valuations might have been affected.
This case highlights the importance of preparing appropriate expert evidence where rent is disputed in lease renewal proceedings. Even where the relevant lease terms are unusual, valuers should still provide a view based on their expert opinion that takes all of the facts into account. The terms of comparable leases should be fully explored, beyond looking at the rent. Irrelevant factors, such as a tenant’s ability to pay, should also be disregarded. Without appropriate evidence, decisions may be hard to predict.
The other key point made by the Court concerned the nature of an appeal. There are strict rules that prevent parties from using an appeal to simply “have another go” at winning. An appellate Court must find strong reasons to overturn a decision of a lower Court. Factual findings of a trial Judge will be particularly difficult to overturn, unless a serious error has been made.