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Lawbite: What goes up must come down

  • United Kingdom
  • Litigation and dispute management

14-11-2018

Dukeminster Limited v West End Investments (Cowell Group) Limited (Central London County Court)

The County Court at Central London recently decided on an unopposed lease renewal matter pursuant to the Landlord and Tenant Act 1954 (“1954 Act”) in which it determined not only most of the key terms of the new tenancy of a listed building close to Grosvenor Square, but also whether the s25 notice served by the landlord was valid in the first instance.

The notice was served on Dukeminster Limited despite the lease being held, at the time, by Dukeminster (UG) Limited (its wholly owned subsidiary).  Dukeminster (UG) Limited argued that omitting the “(UG)” made the notice invalid and shortly before the expiry of the s25 Notice decided to serve its own s26 request. The lease was then re-assigned to Dukeminster Limited.

The Court favoured the landlord’s argument.  The mistake was careless but the intended addressee of the notice and its effect on the lease would be immediately clear to its recipients.  Relevant to the matter was the close connection between the existing and former tenant.

As to the terms of the new tenancy, the Court decided as follows:

  1. Term – 10 years.  Relevant to the decision was the absence of any evidence from Dukeminster to justify the shorter term of 5 years it requested, evidence that a 10 year term of lease had become West End’s default position and the comparables produced by experts which were consistent with a 10 year term.
  2. Rent Review –upward or downward rather than upwards only.  The Court noted that commercial trend showed that upward only rent reviews were most common place but in this instance concluded that the appropriate and inherently fair and reasonable rent review clause is an upwards and downwards clause.
  3. Break clause – tenant break was refused. The requested break was to be triggered where the tenant’s occupation of the building became intolerable as a result of the redevelopment works to the former United States Embassy in Grosvenor Square. The Court concluded that such a departure from the terms of the existing tenancy (which had no break provision) was not adequately supported by evidence and no scheme to monitor when it should be triggered had been suggested.
  4. Rent – £290k per annum, the tenant having proposed £126k per annum and the landlord having sought, £297k per annum. The Court fully accepted the landlord’s expert’s evidence save in relation to the fitting out period allowed.  Applying the decision in HMV Music Ltd v Mount Eden Land Ltd the Court concluded that the landlord’s expert should have amortised the first 3 months of rent free period to reflect the market standard fitting out period in addition to amortising the rent free period that would normally be granted as a pure incentive.  The landlord’s expert’s finding on rent was therefore reassessed and a new rent of £290k per annum was ordered. Interim rent was ordered to be payable at the same rate as the new rent.

Key points

  • Market practice was more relevant when deciding on the duration of the new lease than when deciding on the rent review provisions. Is this a sign that even if market practice doesn’t move towards upwards and downwards rent review, the law might take us there gradually in any event?
  • Whilst not all errors will invalidate a notice, the case offers as a reminder to always take great care when preparing notices pursuant to the 1954 Act (or any other notice). 
  • As well as being unimpressed with the lack of evidence produced by the tenant the Court also seemed critical of its motives in serving a very late s26 request which appeared a ploy to maximise their chances of achieving a lower interim rent by reason of the landlord’s s25 notice being ineffective. 

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