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Lawbite: Renewal leases – coming to terms?

    • Real estate
    • Real estate dispute resolution
    • Real estate sector


    Iceland Foods Limited v Castlebrook Holdings Limited [2014] PLSCS 95

    It is rare for a court, in a business lease renewal, to order a tenant to take a new lease for a term longer than it has asked for.  That is what happened here, and although as a County Court decision it is not a binding precedent, it is nevertheless an interesting example of a decision upon the issue of length of term.

    Iceland Foods Limited (“Iceland”) made an application to the Court for a new lease of its supermarket premises in Sandbach, Cheshire.  By way of background, the site had been a supermarket since around 1970 when Tesco was granted a 35 year reversionary lease.  At the date of the renewal proceedings, Iceland had been in occupation for over 20 years.  Iceland sought a new lease with a 5 year term to give it flexibility; not uncommon in the present market.  Castlebrook Holdings Limited (“Castlebrook”), the landlord, counter-proposed a 15 year term.

    After careful consideration of all of the evidence before it, including evidence of competitors in the surrounding towns and areas (and an analysis of whether Sandbach was a “Waitrose” type of town), the Court determined that the correct length of lease should be 10 years with no break option.  In the view of the Court, this struck a reasonable balance between both parties’ needs.  The Judge stated that to allow a break option at the 5th year would have been effectively granting a lease with a 5 year term. 

    The Judge didn’t believe that the market was as bleak as had been suggested and noted that Iceland had publicised how well it had performed throughout the recession on its own website.  Particular regard was also paid to the performance of Iceland’s store in Sandbach; the evidence showed that profits had declined and for this reason the Judge felt that a term longer than 10 years was inappropriate.  Finally, the Judge had regard to the facts that the expired lease had a 35 year term and that Iceland had been in occupation for in excess of 20 years.

    This decision comes as quite a surprise to practitioners and will be seen as favourable for landlords.  When it comes to deciding the term of a renewal lease the expectation is that, in the absence of agreement, the Court will almost invariably favour the tenant.  Whilst we must remember that this is a County Court judgment, the decision will give encouragement to landlords.  Although the average current length of new leases is around 5 years, it may be that as the market recovers, so Judges will tend to require tenants to have sound justifications for seeking a shorter term length upon renewal.

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