UK: Don't Discount The Discounters: Section 34 Of The Landlord And Tenant Act 1954

Last Updated: 14 July 2016
Article by Emma Broad and Bryan Johnston

The recent unreported County Court judgment in Britel Fund Trustees Limited v. B&Q PLC is important for both landlords and tenants. The key issue concerned the application of section 34 of the Landlord and Tenant Act 1954 (the 1954 Act) in the determination of the open market rental value of premises on lease renewal.


The case concerned an application to the court pursuant to Part II of the 1954 Act to grant a new tenancy of a purpose-built retail DIY warehouse in Tottenham.

The parties had managed to agree all the terms of the renewal lease with the exception of rent. As the landlord (Britel) had plans to redevelop the property, it had been agreed that the proposed 10-year lease would contain a mutual rolling break right exercisable on six months' notice on or at any time after 30 June 2018. Crucially, the court accepted that the landlord's plans were "at such a stage that a prudent prospective tenant would approach the open market negotiation on the basis that it would be operated at 2.5 years".

Section 34 of the 1954 Act

In determining the rent payable the court was required to apply section 34 of the 1954 Act. This provides that, where parties to a lease renewal cannot agree the rent payable, it may instead be:

"determined by the court to be that at which, having regard to the terms of the tenancy (other than those relating to rent), the holding might reasonably be expected to be let in the open market by a willing lessor, there being disregarded:

(a) any effect on rent of the fact that the tenant has or his predecessors in title have been in occupation of the holding ..."

In determining rent, the two key issues were:

  • what allowance should be made for a "rental holiday" such as might be agreed on the grant of a new lease in the open market to compensate a tenant for the time taken to fit out the premises; and
  • what the effect was of the mutual rolling rent on the rent payable.

Rental holiday

While acknowledging that there was conflicting case law, the court looked at the wording of the 1954 Act and concluded that "the rent is to be ascertained for a lease to be taken by a prospective lessee who is not already in occupation. It follows from the disregard at s.34(1)(a) that the tenant is assumed to have vacated the subject premises".

Although it did not follow that in every open market negotiation of a new lease a tenant would receive a rent-free period for fitting out, the court felt that a retailer operating from these premises would need to fit out in order to trade and therefore a rent-free period of three months would be granted. This would equate to a rental discount of 2.5 per cent across the 10-year term.

The rolling break clause

The application of section 34 assumes that there is an open market rent for the relevant premises. As explained by the court, this in turn is based on the assumption that "there exists a prospective lessee who is not already in occupation and who would be willing to take the lease at that rent". It was this sub-assumption that was to prove particularly problematic in this case.

The parties' initial arguments as to the level of rent had been based on the assumption that there would be a DIY retailer in the open market willing to accept a lease in the form of the renewal lease. However, given that it was felt the rolling break would be triggered by the landlord after only two and a half years, it was conceded that in fact no DIY retailer would be prepared to accept such a lease and that the only prospective tenant would be a discount retailer who would be looking to do a "quick, cheap and dirty" fitting out.

Unfortunately neither side had produced evidence of comparable lettings to discounters as they had both assumed that the calculation would be on the assumption that there was a DIY retailer willing to take the lease. Undeterred, the court went on to conclude that the open market rental value for a lease to a discounter before taking account of the break would be £12.62 psf. Applying a 20 per cent discount for the break, the court concluded that the rent for a discounter on the open market would be £10.10 psf, almost 18 per cent lower than the equivalent rental value the court felt would have been payable had there been a prospective DIY retailer interested in the premises.


The court acknowledged that "in the real world B&Q will of course take the lease and will trade in the notional rent-free fitting-out period. However the artificiality of section 34 requires the rent to be judged for a lease to a hypothetical tenant not yet in occupation". In short the fiction of section 34 overrode the facts surrounding this renewal.

In navigating the fiction that is section 34, landlords and tenants should take note of the following, which were highlighted by this case:

  • the potential effect of early break clauses in renewal leases

This case highlights two potential pitfalls arising from introducing an early break clause in a renewal lease:

  • it can significantly depreciate the open market rental value irrespective of the identity of the prospective lessee. In this case the court felt the early break clause would warrant a 25 per cent reduction in open market value in the case of a letting to a DIY retailer and a 20 per cent reduction in the case of a discounter; and
  • it can change and restrict the category of prospective lessees willing to take the lease in the open market (crucially, of course, the court could not consider the existing tenant, B&Q, as one of those contenders).

One factor that did appear to weigh heavily was the strong likelihood that the rolling break in this case would be triggered early on in the term of the renewal lease.

  • The application of rental holidays

This judgment provides a further endorsement that in appropriate cases a rent holiday will be taken into account even though the actual tenant should have no cause or need to fit out the premises (because it is already in occupation).

  • The importance of comparables

It is important to have suitable rental comparables for the court to consider. Here the parties were taken off guard and no comparable evidence was provided as to the likely open market rental value of a letting to a discounter. In another recent case, Flanders Community Centre Ltd v. Newham London Borough Council [2016] EWHC 1089 (Ch), the absence of reliable evidence capable of analysis as to current market rent resulted in the rent for a community centre lease renewal remaining at the then passing rent of £1.

  • The need for consistency

One theme of this judgment was the need for consistency. For example, the court commented on the need to compare like for like.

We ultimately do not know the reasons why the experts did not consider the potential for a discounter to be the hypothetical tenant. There may have been a valid reason for this. However, the case highlights that experts must now consider the categories of user of the premises when ascertaining a rental value pursuant to section 34. It is not enough to assume that the user will be of the same class as the actual tenant.

In summary, the case highlights the disparity between the real world and the hypothetical world. The hypothetical world is a natural fiction. Certain specific facts in the real world can transform a fictional valuation from being loosely based on reality to being a work of fantasy. That is the reality of the real and virtual worlds that expert valuers inhabit.

Further, care should be taken in agreeing terms that are specific to the landlord and tenant's particular situation as such terms may well have more of an impact on rent than the parties initially thought (or even intended). In the fictional world, that is irrelevant and the reality may well turn a fantasy valuation into a nightmare reality.

This article was co-written by Senior Legal Chartered Executive Anna Southall in Dentons London office.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
28 Nov 2017, Conference, Munich, Germany

On 28 May 2017, interested students, legal clerks and fully qualified lawyers will have the opportunity to meet Dentons at the JURAcon career fair in Munich.

29 Nov 2017, Business Breakfast, London, UK

As more and more electricity generation is decentralised and produced from inherently inflexible energy sources, everyone agrees that the UK electricity system needs to become more flexible. There is no shortage of technologies and business models that could provide that flexibility and there are plenty of ideas about how regulatory change could facilitate their adoption.

4 Dec 2017, Seminar, London, UK

The Internet and its supporting technologies play host to an increasing importance for human activities, from communications and commerce to online gaming and dating. With more and more individuals and businesses embracing the Internet and making it part of their lives, digital footprints are being left online, making it even easier for someone to trace and monitor their existence.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.