Rent Suspension
The recent case of WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellshaf MBH is the first recorded judgment on the impact of the pandemic on unopposed lease renewals under the Landlord and Tenant Act 1954.
Background
In this case, both parties had accepted that the tenant’s lease renewal should contain a pandemic rent suspension clause, to suspend 50% of the rent (but not service charge) in the event of further disruption caused by the pandemic. However, the parties were unable to agree upon what would trigger that clause.
In this case, it is relevant that the tenant, WH Smith, was a business that was not required to close during the pandemic, but its footfall was severely affected by the closure of other premises in the locality.
The Landlord’s Proposal
The landlord proposed that the 50% rent suspension would apply if, as a result of the Government’s measures in response to a pandemic, “the tenant was compulsorily required to cease trading from the premises”.
The Tenant’s Proposal
The tenant suggested that the rent should be suspended during any period “in which a non-essential retailer would not open the premises due to (1) an epidemic, public health emergency or outbreak of communicable disease, (2) any Act of Parliament, statutory instrument, statutory power or decree passed, issued or exercised by or on behalf of the UK government in relation to Covid-19 (or any subsequent strain), including compliance by the tenant with advice or guidance from the UK government, the National Health Service or other health or regulatory bodies in relation to Covid-19 (or any subsequent strain)”.
The Judgment
The Judge ruled in favour of the tenant’s proposal that the trigger was the closure of non-essential retailers.
Such a clause provides a benefit to the tenant in reducing liabilities in the event of a renewed pandemic, but the Judge did not believe it justified an uplift in rent. The Judge also acknowledged that this type of clause will be something that all tenants will want and that the market has now priced it into the negotiations.
Going forwards, many tenants will not expect to have a pandemic rent suspension provision in their new leases and may seek to argue that without such a provision, their rent should be discounted.
Here to Help
If you have any more questions or would like further information regarding lease renewals, you can contact our Property Litigation Team on 0161 941 4000 or email The Property Litigation Team.