Pandemic Rent Suspension Clauses on Lease Renewals: Round 2
On 11 May 2021 we reported on the outcome of the WH Smith lease renewal proceedings.
In WH Smith one of the issues the County Court had to consider was the manner in which a pandemic rent suspension clause would operate, the principle of its inclusion in the lease having been agreed. Judgment was handed down last week in the unreported case of Poundland Limited v Toplain Limited, a case in which the court had to consider whether or not a rent suspension clause should be included at all on a lease renewal under the Landlord and Tenant Act 1954.
The rent suspension proposed by the tenant was a 50% reduction of rent during circumstances in which Poundland was prevented from using the premises. The judgment does not set out in detail when the clause might be engaged, so we do not know whether it was to be engaged when the premises could not be used at all for any reason or in certain defined circumstances only. Nor do we know whether it would be engaged if the premises could physically be used in part and/or whether it would be engaged if the tenant could open but for limited circumstances (e.g. for the sale of essential goods) only.
In support of the inclusion of such a provision the tenant argued that:
- The clause benefitted both parties. If the tenant was required to pay full rent during such periods the tenant may have some difficult decisions to take. However with the benefit of a reduced rent it would be more likely that the tenant could retain the lease and (assuming it was permitted to) trade from the premises; and
- Clauses such as this are becoming more common and indeed can be seen as being agreed to by the landlord in the WH Smith lease renewal case.
For the landlord it was contended that there was no precedent for such clauses. The WH Smith case should not be seen as having that effect.
Furthermore, the inclusion of such a clause would fundamentally change the nature of the bargain between landlord and tenant. As the restriction on premises being open for trade will be a matter for legislation the appropriate course of action in the event of a future use prevention event would be for the tenant to consider what relief the Government would provide in light of such an event and to rely upon the same to mitigate its exposure.
On this point the Judge decided the case in favour of the landlord, determining that to impose a sharing of risk as proposed by the tenant was neither fair nor reasonable in circumstances where the landlord alone was forced to absorb the pain of such a reduction. By contrast, if the suspension clause was not within the lease then the tenant may still be able to mitigate its exposure to rent and the financial impact of such an event by relying upon Government backed schemes or reliefs that might be introduced.
While the Judge noted agreement to the inclusion of such a clause in the WH Smith case, that was not to be seen as a precedent for the inclusion of such clauses in renewals generally. The tenant had to establish that the inclusion of such a clause was fair and reasonable in all the circumstances. On the facts of this case and considering the clause sought, the Judge determined that Poundland had not discharged the burden of proof upon it.
As with the WH Smith case, Poundland is a case at County Court level and so cannot be considered to set a binding precedent. In addition, cases on determination of specific terms of a renewal lease can often be fact sensitive, not only in relation to the specific terms of the clause under consideration but also the landlord’s general attitude to such clauses.
Looking specifically at rent suspension, if a landlord has a track record of including such clauses in leases or agreeing to them in principle, that may be a relevant factor for a court to consider in assessing whether such a clause might be fair and reasonable. This in turn suggests that this is not the last we have seen of such cases coming before the court.