A clear wake-up call – don’t miss your chance!

Clear Call Ltd v Central London Investments Ltd [2016] EWCA Civ 1231

Summary

The Court of Appeal has recently considered the admissibility of allegations concerning comparable rental evidence for an application to renew a business tenancy under the Landlord and Tenant Act 1954.

In this case, the tenant contended that a key comparable transaction relied on by the landlord was in fact a sham, with an artificially high rent. The point had been raised initially and unsuccessfully at the first trial. The tenant then appealed and sought to bolster its arguments with additional submissions, but the High Court refused to hear the evidence.

The Court of Appeal agreed that the High Court had been entitled to do so. The fact that the relevant date for the Court to determine the terms of the new tenancy was now the appeal date, rather than the trial date, did not mean that the Court had to allow fresh evidence. The arguments should have been made at the trial and in any event, the “new” evidence was unlikely to be significant in deciding the matter.

The facts

Clear Call Ltd was the tenant of business premises on Edgware Road, London. The landlord was Central London Investments Ltd.

The tenant had applied for a new lease pursuant to its security of tenure rights under the 1954 Act. By the time the matter reached trial, the only issues that remained in dispute were the new market rent and the interim rent.

Both sides therefore submitted expert evidence on the level of rent in the usual way.

The law

Section 34(1) confirms that the rent payable under a renewal lease granted pursuant to the Act should, in default of agreement:

“…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…”

This is subject to various disregards specified in the 1954 Act, none of which are relevant to this article.

The evidence

Evidence of rent on the “open market” is usually provided in the form of an analysis of comparable transactions for similar properties in the area.

However, in this case, the tenant’s expert did not rely on comparable transactions to justify his view that the correct rent should be £88,000 per annum. Instead, he argued that this sum fitted the “historic tone” of rents in the area. Conversely, the landlord’s expert sought to rely on three comparable transactions for nearby properties on the same road. In cross examination, Counsel for the Tenant described one of these comparables, a letting to Al Qahtani Group Ltd, as “suspicious”.

Essentially, the allegation made was that the letting to Qahtani was a sham that should be disregarded, as it was not a genuine transaction. In support of this, the tenant submitted that:

  1. Despite the seemingly very high rent, the premises let to Qahtani had been unoccupied for 16 months after the lease was granted;
  2. The landlord and its expert had previously put forward comparable evidence in other lease renewal proceedings that had not been genuine; and
  3. The landlord’s expert had apparently failed to enquire as to the genuineness of the transaction.

The judge found there was no evidence that the landlord’s expert evidence was untruthful. She accepted his hearsay evidence that rent was being paid by Qahtani whilst it was obtaining consents to fit out the premises for a change of use. She therefore accepted the comparable and used it to conclude that the applicable rent should be £125,700pa.

The First Appeal – High Court

In the first instance the tenant appealed in the High Court, and sought to rely on “fresh” evidence to attack the Qahtani comparable as a sham. It argued that:

  1. Qahtani’s premises were still vacant and in a dilapidated state, as no works had been carried out;
  2. Qahtani was registered at Companies House as a dormant, non-trading company;
  3. Other tenants of the Landlord had complained about the rent awarded at the trial; and
  4. No reasonable person would pay £400,000pa to rent a fish shop on Edgware Road.

However, the Court rejected these arguments, principally on the basis that the “sham” allegation had already been put before the County Court and rejected.

The Second Appeal - Court of Appeal

The tenant then appealed again to the Court of Appeal, contending that the evidence was new and that a re-trial should be ordered to determine the correct rent.

The Court of Appeal stressed that there may be cases where fresh rental evidence can be adduced after a trial. However, in order to do so, a party would need to show that:

  • The evidence could have been obtained through reasonable diligence before trial;
  • That the evidence would have an important influence on the case; and
  • That the evidence appeared credible.

The supposedly new evidence provided by the tenant in this case did not pass this test. Reviewing each point, the Court noted the following:

1. The occupation/condition of the premises added little to arguments already made at trial, and these points were unlikely to have affected the judge’s reasoning; 2. The fact that Qahtani was a dormant company could have pointed out at the original trial; 3. The fact that other tenants were complaining was of no evidential substance, nor was it particularly surprising; and 4. The level of the rent paid by Qahtani was a point that could have been argued at the original trial.

In the circumstances, the Tenant’s application was dismissed.

Interestingly and helpfully, the Court did go on to comment on the likely conclusions if the “new” evidence had been allowed. The Court concluded that the evidence showed that:

  • The Qahtani transaction undoubtedly took place;
  • There were negotiations before the grant of the lease;
  • Tent was paid for a substantial period; and
  • An application for planning permission for change of use was pursued.

Our comments

A Court that is deciding the terms for a new lease is usually deciding what terms will govern the future rather than considering what has happened in the past. Unless there has been a significant change between the first trial and the appeal – such as a landlord obtaining planning permission for redevelopment– this case gives a useful indication as to the limits that the Court will apply to fresh evidence.

When preparing expert evidence of the applicable rent in a renewal application under the Act, comparable evidence is likely to be preferred, particularly for retail premises in Central London, where such evidence is usually readily available.

If there are any allegations to be made concerning the quality of an opponent expert’s chosen comparables, these should be investigated in detail and put before the Court at trial. Even if strong new arguments are identified later, they are unlikely to be admissible on appeal if they could have been put before the Court at first instance.

Parties and their experts should therefore ensure that they are satisfied that all due diligence has been carried out and that all relevant points have been included in their submissions, as they may not get a second chance.