As a general rule, most tenants who occupy premises for the purposes of a business will be entitled to renew their Lease when it comes to an end.

When the term of the Lease expires a tenancy will continue until it is brought to an end in accordance with the Landlord & Tenant Act 1954 (“the Act”).

In most cases a landlord will serve a notice under Section 25, or the tenant will serve a request under Section 26 of the Act in order to bring the tenancy to an end and start the process of negotiations for a new lease.

In many cases, the terms of the new lease are agreed but the Court will determine any terms that cannot be agreed.

In a recent case, a London Borough Council let a property to a Community Association to use the premises as a community centre. The lease was for a term of seven years at an annual rent of £1.00. The property was in poor condition and the association was to carry out works to improve the condition of the premises. If the works were not carried out within one year, the annual rent increased to £1,200.

The lease was quite unusual containing various terms relating to use as a community centre. These allowed the Council a good deal of control over how the premises were run and were different from the terms contained in most commercial leases.

Negotiations between the parties for a new Lease were unsuccessful and an application to Court was made.

Both parties appointed experts on rental values but it was difficult to provide any suitable comparables to the property because the lease was unusual. The association’s expert took the view that the property had no market value and thus the annual rent of £1.00 should apply. The London Borough’s expert suggested £16,000 per annum was a proper market rent.

The County Court Judge was not happy with the expert evidence from either side which she considered inadequate. The lack of comparables and any evidence as to current market rent led the Judge to decide that she was unable to make a finding on that issue. As she could not make a finding, and in the absence of any other guidance from the parties, the Judge decided that the rent should not change and £1.00 should still apply.

The London Borough appealed.

The High Court took the view that the County Court Judge was entitled to conclude that she had no reliable evidence of the current letting value of the property and, was therefore entitled to take account of the current rent in order to reach a decision on the new rent payable.

On appeal the Council argued that the current rent should be £1200 but at trial its expert had assumed that the work had been done because the passing rent was £1.00. It was too late to argue that the original works had not been carried out. As a result the High Court was satisfied that the County Court Judge had not made any mistake in concluding that the £1.00 rent level was the passing rent.

This case is a useful reminder that even when a property is unusual and it is difficult to find comparables, it is nonetheless essential for the parties and their experts to put forward suitable evidence and, as the appeal judgement points out, a trial is not a “dress rehearsal”.