Lease renewals - the importance of expert evidence
Monday, 5th September 2016
Although lease renewal proceedings are often issued at Court, the parties rarely end up at trial and instead the renewal lease is usually completed without the intervention of the Court.
From a practical perspective, the fact that lease renewals rarely end up being determined by the Court means that although there are a wide range of principles that can be taken from existing case law, there is a lack of recent case law for parties to refer to in order to assess the Court's likely approach.
However, one recent lease renewal case, Flanders Community Centre Ltd v London Borough of Newham (2016), was heard by the High Court and has emphasised the importance of detailed expert evidence and the role it has to play in the proceedings.
In this case, the London Borough of Newham was the landlord and its tenant, the Flanders Road Community Association, rented a property from it which was used as a community centre.
The original lease was entered into in 2001 and at this stage the property was in need of repair. The parties agreed that the cost of the necessary repair works totalled £14,300 and it was agreed that the tenant would carry out these works at its own cost. In view of this, the landlord and tenant agreed that the initial rent would be 1 a year.
The lease also contained various terms which provided for an increase in the yearly rent if the tenant did not carry out the works within a year and which required the tenant to monitor the use and membership of the community centre.
A rent of 1 was demanded by the landlord throughout the term of the lease and the contractual term expired in 2008.
Terms for the renewal lease could not be agreed and proceedings were subsequently issued. At trial the tenant's expert argued that the renewal rent ought to remain at 1 a year and the landlord's expert argued that a market rent of £16,000 should apply.
Determination of rent under the Landlord and Tenant Act 1954
Under the Landlord and Tenant Act 1954 the renewal rent is to be assessed at a rate at which the premises could be let in the open market and therefore each party is required to submit expert evidence to the Court confirming the level of rent that it maintains is appropriate. The respective valuations are to be based on an open market rent as evidenced by the rent agreed for comparable units in the local area having regard to the terms of those leases and in particular, any onerous lease terms which might depress the level of rent achieved.
The Court's decision
The case was ultimately referred to the High Court who agreed with the County Court Judge that the appropriate rent was 1.
The High Court agreed with the County Court Judge that the evidence submitted by the landlord's expert was inadequate on the basis that the landlord's expert had failed to provide any details of the actual lease terms of the comparables referred to. Therefore she was not able to make a finding on the issue.
This case emphasises the importance of each party preparing and relying on detailed expert evidence because the Court will not allow additional evidence to be relied on at trial.
It also shows just how much significance the passing rent under the lease can have and therefore if either party wants to submit that a lower or higher rent is payable, it needs to make sure that it has thorough expert evidence in place.