During the pandemic, the relationship between commercial landlords and tenants has been subjected to pressures, the likes of which we have not seen before. As the immediate pressures recede, the property world has been thinking about how future pandemic risk should be factored-in and about the balance of economic risk between commercial property owners and occupiers.
The recent case of Poundland Ltd v Toplain Ltd is only a County Court decision, but it is one which throws some interesting light on this ongoing tussle in the commercial property market.
The County Court heard an application under the Landlord and Tenant Act 1954 by a tenant (Poundland Ltd) seeking a renewal lease. The lease was to include additional provisions, reflecting lessons learned during the pandemic, namely:
The tenant asserted that the automatic cut to future rent and service charge would be a modernisation of the lease (taking account of recent experience during the COVID-19 pandemic) and cited the case of WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft mbH in which another rent suspension clause was considered.
Toplain opposed the new clause, arguing that it constituted a fundamental change in the relationship between the parties; one without precedent in the market.
The court agreed with the landlord. The purpose of the 1954 Act was not to rewrite previously negotiated risks and it would be unreasonable to impose a sharing of the risk in these circumstances: the landlord would have no control, whereas the tenant might qualify for government support. The proposed clause would not be fair and reasonable in the circumstances and the facts were different from the WH Smith case (because there the parties had already agreed that a pandemic rent suspension would form part of the lease and the court was merely ruling as to how it would operate).
As for the restriction to the forfeiture clause, the court again found in favour of the landlord. The tenant’s proposal amounted to a significant change to the commercial relationship between the parties, shifting part of the tenant’s risk onto the landlord.
Even though this was a County Court case, and therefore not binding in precedent terms, it is a useful indicator of the way in which courts are likely to approach these issues.
For further information about the issues raised by this case, please speak to your usual Druces representative or contact: