UK County Court refuses tenant’s call for COVID-19 pandemic clauses to be included in commercial lease renewal

Hogan Lovells
Contact

Hogan Lovells

[co-author: Pemi Arowojolu]

The County Court has handed down its judgment in the case of Poundland Ltd v Toplain Ltd, in which Poundland Limited argued unsuccessfully that a renewal lease under the Landlord and Tenant Act 1954 should incorporate so-called ‘pandemic clauses’. The Court held that allowing such clauses on renewal would create a shift in the parties’ relationship and would not be fair and reasonable.

What is a lease renewal?

Under the Landlord and Tenant Act 1954 (the “LTA 1954”), a tenant under a commercial lease is entitled to call on its landlord for the grant of a new “renewal” lease. This provides an opportunity for both parties to negotiate revised terms, but if the parties cannot agree the terms of the new lease the County Court has jurisdiction under the LTA 1954 to determine what the renewal terms should be.

Background to the dispute?

This case concerned the dispute between Toplain Limited (as Landlord) and Poundland Limited (as tenant) as to the terms of a renewal lease under the LTA 1954.

Poundland argued that it should be entitled to include in its renewal lease ‘pandemic clauses’ intended to protect the tenant against the kind of business interruption that was prevalent during the COVID-19 pandemic. These clauses included:

  • Halving annual rent and service charge during future pandemic lockdowns (i.e. when government requirements cause store closures);
  • A clause to provide relief for the tenant from complying with its insurance covenants during a lockdown; and
  • Varying the forfeiture clause to prevent the Landlord from forfeiting the lease during a lockdown.

The Tenant sought to rely on a case involving WH Smith from earlier this year, to argue that it is fair and reasonable for lease terms to be updated on renewal to include ‘pandemic clauses’ to protect the tenant in the event of future pandemic lockdowns. However, the court clarified in Poundland v Toplain that the court in the WHSmith case had not been called upon to consider the principles established in O’May v City of London Real Property Co Ltd, as to whether it was fair and reasonable to include such terms on renewal. In the WHSmith case, the landlord and tenant had already agreed to include a clause under which the rent would be reduced in the event of a pandemic lockdown and the court had not been asked to determine whether as a matter of principle a tenant is entitled to call for such a clause to be included in the renewal lease. In the present case, the court was considering a dispute between the parties as to whether so-called ‘pandemic clauses’ should be included at all.

O’May v City of London Real Property Co Ltd is the leading authority on the question of what new terms should be included in a renewal lease under the LTA 1954 where the parties are in disagreement. The House of Lords had held in that case that the court should not generally use its discretion to change lease terms on renewal. It was up to the party seeking the change to demonstrate that the change is fair and reasonable.

The landlord argued in Poundland v Toplain that there is no existing market practice for such ‘pandemic clauses’ to be included routinely in new lease, and further argued that including these clauses would fundamentally change the relationship between the parties, not least by potentially reducing the rent payable by the tenant and preventing the landlord from exercising its proprietary right to forfeit.

Decision

In his judgment, District Judge Jenkins stated that "…it is not in my view sufficient a reason to impose a sharing of the risk [arising out of a pandemic lockdown] in circumstances over which the [landlord] would have no control whilst the [tenant] may have some by reference to reliefs or schemes that might be available to them by the government”. He added that “to impose this variation would in my judgement not be fair and reasonable and I do not do so".

Following O’May, Judge Jenkins decided that it would not be fair and reasonable to include new terms which would reduce the tenant’s liability during a period where it is difficult for the tenant to trade, because it is "not the purpose of the Act to protect or insulate the [tenant] other than to allow them to continue their business following the term end".

The future for pandemic clauses

This case is one of many examples of legal disputes to have arisen between commercial landlords and their tenants as a result of the business interruption caused by the Covid-19 Pandemic. Although the landlord successfully resisted the inclusion of new pandemic clauses in Poundland’s lease, the case may not be the last in which a tenant argues for the inclusion of terms (or implication of terms) into commercial leases intended to protect their financial position during the current and future pandemics.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hogan Lovells | Attorney Advertising

Written by:

Hogan Lovells
Contact
more
less

Hogan Lovells on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.