Background
The landlord and tenant (Poundland Ltd) had agreed to renew the tenant’s existing lease of a retail premises for a further term of 5 years and with an annual rent of £130,000 (exclusive of VAT). However, the parties could not reach agreement in relation to the actual new terms of the renewal lease and specifically with regard to the tenant’s request for the inclusion of a rent suspension clause.
The tenant sought to incorporate a rent suspension clause into the renewal lease, which would operate by reducing the annual rent and service charge payable to the landlord by 50% in the event of a government-imposed lockdown. Poundland Ltd contended that such a rent suspension clause would bring the terms of the renewal lease in line with reality as it would be reflective of what had happened in the series of lockdowns that the nation had faced since the beginning of the COVID-19 pandemic. The tenant also sought to vary the existing forfeiture provision by preventing the landlord from forfeiting the lease during a lockdown.
The landlord however, opposed the inclusion of the COVID-19 rent suspension clause. Their argument was that the inclusion of the rent suspension clause was not usual market practice and that such provision would fundamentally alter the relationship between the landlord and tenant.
In its decision, the County Court agreed with the landlord, saying that it would be unreasonable to incorporate a rent suspension clause into the renewal lease as this would mean that the landlord would have to share commercial risk with the tenant. The court also pointed out that the tenant had the ability to somewhat mitigate risk by benefiting from available government schemes or reliefs, whereas the landlord had no such benefit. The County Court held a similar view in relation to the tenant’s proposal to vary the existing forfeiture clause within the lease.
What does this mean for landlords and tenants?
Whilst this decision may come as a relief for commercial landlords who are worried about the commercial implications of the inclusion of COVID-19 (or other pandemic) rent suspension clauses, this is not a legally binding decision in relation to future cases. This case, along with a recent WH Smith Retail Holdings case, do however stress the significance of parties trying to negotiate lease renewal terms (including whether or not to incorporate a rent suspension clause) before approaching the court.