UK: Court Refuses To Impose Pandemic Clause In Terms Of Renewal Lease

In a decision which will serve as a welcome relief for landlords, the County Court has refused a tenant's request to include a clause in a business renewal lease which would reduce the rent by 50% in the event of future government imposed lockdowns.

Where terms of a renewal lease cannot be agreed between the parties and so fall to be determined by the Court, Section 35 of the Landlord and Tenant Act 1954 provides that the Court shall have regard to the terms of the current tenancy and all other relevant circumstances. 

Guidance as to the approach to be adopted by the Court in applying Section 35 comes from the leading case of O'May v City of London Real Property Co Ltd [1983]. O'May  is authority for the principle that the court should not sanction a departure from the terms of the current lease unless the burden of changing the terms of the current tenancy falls on the party proposing the change and the change proposed is fair and reasonable.

The Decision in Poundland Ltd v Toplain Ltd

In this case, the tenant, Poundland, had argued that its renewal lease should include a provision whereby the annual rent would be reduced by 50% during any "use prevention measure", a phrase defined to include lockdowns due to Covid, so as to modernise the lease. Poundland argued that such a provision would be in both parties' best interests as it would enable the tenant to continue to trade and so to meet its ongoing obligations to the landlord.

The landlord argued that there was no market precedent for such a clause and that it would fundamentally change the relationship between the parties. The landlord pointed out that the impact of any future lockdown would be controlled by legislation and that the proper course for the tenant would be to take advantage of any benefits or grants offered by the Government.

In his Judgment, handed down in the Brentford County Court on 2 July 2021, District Judge Jenkins declined to introduce such a pandemic clause on the basis that it would not be fair and reasonable to expect the landlord to share the risk in circumstances over which the landlord would have no control and where the tenant could avail itself of reliefs or schemes offered by the Government. The Judge explicitly followed the principles in O'May by which any change to the terms of the current tenancy must be fair and reasonable.

DJ Jenkins found that this case could be distinguished from the recent decision in WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft mbH on the basis that the parties in the WH Smith case had already agreed that a pandemic rent suspension clause should be included in the renewal lease and the court was simply required to determine the mechanics of how that provision would operate.

The landlord was successfully represented by Ms Cecily Crampin at Falcon Chambers, a barrister regularly instructed by PDT. 

Thoughts on the case

Whilst the case of Poundland Ltd v Toplain Ltd [2021] is a County Court decision and so does not have binding effect on future cases, it shows how judges may apply current guidance to pandemic-related decisions and the thought process involved. 

When asked by PDT for her thoughts on the case, Ms Crampin commented "This case shows judicial thinking on the inclusion of Covid-clauses, and how the guidance in O'May may be applied in the specific context of lease terms sought as a result of the Covid-19 lockdowns."