The recent case of Kwik-Fit Properties Ltd v Resham Ltd [2024] provides useful guidance to any party negotiating terms in a commercial lease renewal.
The issues at hand were:
- Whether the tenant could have a break clause, exercisable every 5 years of the 15 year term;
- Whether the tenant’s contribution to maintenance of an access way should be capped; and
- Rent.
Break clause
Throughout the renewal and at trial, Kwik-Fit maintained it had a policy across its units to take short leases or leases with 5-year breaks, to provide them with flexibility. However, at trial their lease renewals were examined and in the 80 renewals negotiated since March 2017 to the date of trial, 48 did not have this 5-year break. Further, the Court found there was no evidence that this was standard practice in the car maintenance industry.
A party in a lease renewal may assume that the Court will simply ‘take their word for it’ when giving evidence as to internal policies, but this decision showed very clearly that actual evidence needs to be supplied. Kwik Fit may have had a policy of aiming for short leases and break options on renewal, but clearly this was not something that they could guarantee and that is what was shown up by the evidence.
Therefore any landlord or tenant who wishes to argue that they require a clause as it is a company-wide policy should be certain that this is in fact the case before including it in their evidence.
Maintenance charges
The position in the lease being renewed was that Kwik-Fit would pay 33.3% of the reasonable and proper cost of the maintenance of the accessway. However, the clause also allowed the landlord to amend this percentage if it considered it fair and reasonable and it was this aspect which the tenant wanted removing.
The Court felt that the fact that the landlord could only amend the percentage if it was ‘fair and reasonable’ was protection to the tenant. Therefore, there was not enough justification to change the wording of the existing lease. As always, the basis of the terms of the new lease had to be the terms of the existing lease, with changes to be ‘reasonable modernisation’ only.
Rent
The landlord sought a rent of £46,250, and the tenant £27,400. However, there was an additional quirk here in that the landlord had not exercised its rent review throughout the 25 year term of the lease, so the rent remained at £35,000 as it was in 1995 throughout the term.
The Court understood the landlord’s position not to trigger the rent due to uncertainty, or in case a higher rent was not achieved.
It gave greater weight to rents achieved in comparable quick-fit car maintenance premises and fixed the rent at £39,300. This was also an interesting ruling from the Court as often the valuation will consider the rents obtained by other units nearby, often on the same estate. Here however the use and type of the unit itself was taken into account as well.
Your lease renewal
The starting point when negotiating any term of a renewal lease is to look at the existing lease. A party cannot change a term without adequate justification – otherwise, the other party is entitled to argue that it is beyond reasonable modernisation and should stay the same.
However, we often assist both landlords and tenants by negotiating a commercial deal. We are aware that most clients wish to avoid the stress and cost of Court proceedings and so we can help with acquiring expert evidence and advising on strategy to ensure the new lease suits our client’s needs.
