Impact of COVID pandemic on rent and interim rent under the Landlord and Tenant Act 1954

HHJ Parfitt has handed down judgment in the long-standing dispute between S Franses Ltd v The Cavendish Hotel (London) Ltd in which he considered the impact of COVID-19 on rent and interim rent in lease renewal proceedings under the Landlord and Tenant Act 1954.

We have previously discussed the high-profile case of S Franses Ltd v The Cavendish Hotel (London) Ltd.  In the first round of those proceedings, the Supreme Court ultimately held that the landlord did not genuinely hold the necessary intention to redevelop the premises to make out its ground of opposition under s.30(1)(f) of the Landlord and Tenant Act 1954. The tenant was therefore entitled to renewal leases of the premises.

This latest decision in this long-standing dispute concerns the terms of the renewal leases and, in particular, the impact of COVID-19 on the rent payable for the gallery/showrooms under the renewal leases and the interim rent payable for a period of more than 5 years between the expiry of the original leases and the commencement of the renewal leases.

Rent

The Judge was critical of the methods employed by each party’s expert valuer.  Nevertheless, he acknowledged the real difficulties the valuers faced in seeking to address a COVID-dominated rent assessment when there were no comparables like open market transactions.  Interestingly, he decided that the traditional retail zoning methodology to valuation should be adopted rather than applying an overall percentage reduction in rental values to account for the pandemic.

“Standing back” and taking into account all of the evidence before him, he considered that a new annual rent of GDP 102,000 would be appropriate in 2021 for the Mayfair location, amounting to a substantial reduction of more than 50% of the previous annual passing rent of GDP 220,000, as set in 2011.

Interim rent

As the landlord sought to oppose the renewal, the general principle that the interim rent will be equivalent to the renewal rent (save in certain special circumstances) did not apply.  Rather, the interim rent was to be calculated by reference to the rent which it would be reasonable for the tenant to pay for a tenancy from year to year, as at the date the original tenancies expired in January 2016.  This was particularly significant in this case because of the lengthy period of time between the 2016 valuation date and the interim rent determination in the proceedings.

In this instance, the Judge held that an interim rent of GDP 160,000 per annum would be appropriate, taking into consideration the fact that rents were close to their market peak during the first three and half years of the interim rent period, and the downward impact of the pandemic on retail rents in more recent months.

Whilst the decision does not provide any new points of law, it does provide helpful insight and guidance into the approach likely to be taken by the Court when considering the impact of the pandemic on valuation and 1954 Act rent and interim rent (in opposed renewals). The case does have some special factors which made it less easy for the landlord and tenant and their valuers to resolve the dispute, considering the previous rounds of litigation, the restricted, rather than fully open, retail use of the premises, and the long periods of time under consideration.

We will watch this space carefully for developments and advise you promptly.