Tenants Improvements at Lease renewal

[denzil1234]

I am looking at a property occupied by a tenant who has recently renewed their lease for another 10 years. In 1997 they carried out a significant extension to the property with Landlord consent. The new lease states that these works are to be disregarded for the duration of the term when considering any rent reviews and specifically mentions the extension, which is clear to me so far.

On lease expiry, should the tenant wish to renew once again the previous improvements will be over 21 years old and from a previous tenancy and I assume can now be rentalised. However do the principles established in the case of O’May v City of London Real Property Company (which are that the tenant is entitled to a new lease no more onerous than the existing lease) hold any weight here? I believe not, as this goes directly against S34 of the 1954 L&T Act, and cases such as Brett v Brett Essex Golf Club and Panther Shop Investments v Keith Pople show decisions being referred directly to the Act.

(O'May -v- City of London Real Real Estate Company Limited. Here the landlord was in effect trying to transfer the responsibility for the repair and maintenance of office premises to the tenant. The value of the reversion would have been increased by over £1m as a consequence of this change and the court held that the landlord was not entitled to insist upon such a requirement).

if anyone has any advice it would be much appreciated

thanks

[Lawcruncher]

There is a difference between what the parties agree should be disregarded on a review of rent during the term and what should be disregarded when a lease subject to the 1954 Act comes comes up for renewal. The former is determined by what the lease says and the latter by the Act.

However, I think your question is not about how the rent is assessed on renewal under the Act, but whether the tenant is entitled to insist that the provision requiring the extension to be disregarded on review is carried forward to the new lease. I think the answer lies in the Act.

There are four matters which need to be determined when a lease is renewed under the Act:

(a) The property to be comprised in the tenancy - dealt with by section 32

(b) The length of the term - dealt with by section 33

(c) The rent payable - dealt with by section 34

(d) The other terms - dealt with by section 35

(a) and (b) are not relevant to the discussion.

Section 34(3) provides:

Where the rent is determined by the court the court may, if it thinks fit, further determine that the terms of the tenancy shall include such provision for varying the rent as may be specified in the determination

Whether there should be any review(s) at all and, if so, on what terms is in the discretion of the court. Those terms must of necessity include the basis on which the rent is to be reviewed. Accordingly, what is to be assumed or disregarded does not come under section 35.

Section 35(1) specifically confirms the point - see the words in red:

The terms of a tenancy granted by order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances.

Since section 35 does not apply to what is to go in the rent review provisions the words in blue cannot apply to what is to go in the rent review provisions.

It would seem therefore that the tenant cannot insist that the disregard relating to the extension is carried forward to the new lease. Equally though the landlord cannot insist on its being left out. The matter is in the discretion of the court. However, I would suggest that it would be a bit of a nonsense if the initial rent assessed under the Act took the extension into account, but the rent review provisions provided that it should be disregarded. In a case where the tenant has carried out improvements within the previous 21 years, the correct approach would seem to be for the rent review provisions to disregard improvements completed not more than 21 years before the relevant review date.

The above is my personal opinion based solely on what the Act says. It may be that there are cases that dealt with the point and came to a different conclusion. If the difference between the rent with the extension taken into account and with it disregarded is significant, you should take advice from a landlord and tenant specialist lawyer or seek an opinion from counsel.

[davidjpowell]

I am looking at a property occupied by a tenant who has recently renewed their lease for another 10 years. In 1997 they carried out a significant extension to the property with Landlord consent. The new lease states that these works are to be disregarded for the duration of the term when considering any rent reviews and specifically mentions the extension, which is clear to me so far.

On lease expiry, should the tenant wish to renew once again the previous improvements will be over 21 years old and from a previous tenancy and I assume can now be rentalised. However do the principles established in the case of O’May v City of London Real Property Company (which are that the tenant is entitled to a new lease no more onerous than the existing lease) hold any weight here? I believe not, as this goes directly against S34 of the 1954 L&T Act, and cases such as Brett v Brett Essex Golf Club and Panther Shop Investments v Keith Pople show decisions being referred directly to the Act.

(O'May -v- City of London Real Real Estate Company Limited. Here the landlord was in effect trying to transfer the responsibility for the repair and maintenance of office premises to the tenant. The value of the reversion would have been increased by over £1m as a consequence of this change and the court held that the landlord was not entitled to insist upon such a requirement).

if anyone has any advice it would be much appreciated

thanks

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