One of the most common issues that arises for both landlords and tenants alike in a commercial lease renewal under the Landlord and Tenant Act 1954 is the issue of ‘interim rent’.
Many parties simply assume that their current rent will continue until the date their new lease is completed – or the new rent will be backdated until the contractual expiry date of the old lease – but neither is necessarily the case.
‘Interim rent’ is the phrase used to describe the rent payable in the period between the expiry of the current tenancy and the start of the new one. However, even this description creates questions for landlords and tenants, as the ‘expiry of the current tenancy’ does not necessarily mean the expiry date of the current lease. Instead, it refers to the earliest date the new lease could have begun, which is 6 months from the service of a notice under section 25 or section 26 of the Landlord and Tenant Act 1954.
The introduction of rules around interim rent was to prevent tenants from putting off renewing their leases in order to remain in occupation under a lower rent or, conversely, landlords from rushing a lease renewal to obtain a higher rent sooner.
Generally, the parties will agree that the ‘interim rent’ will be the rent under the new lease. This is the case unless there is a particular reason for this rule not to apply – for example, if there has been significant turbulence in the rental market in that time. This takes into account the fact that parties do not always get around to renewing their leases immediately upon the expiry of the contractual term, and circumstances can vary at that time. This was particularly pertinent throughout the COVID-19 pandemic, the effects of which the rental market is, of course, still recovering from.
If a landlord and tenant do not agree that the rent under the new lease should also be the interim rent, they will need to engage a specialist surveyor to advise on the correct interim rent level.
Parties also do not have to rush to agree an interim rent. The new lease can be completed, and if there is any court claim for a new tenancy, this can be ended without the question of interim rent being addressed. It may be convenient for the parties to deal with it all at the same time, but the law allows parties to apply to the Court to determine the level of interim rent up to 6 months after the expiry of the current term of the lease.
If a court claim for a new tenancy is made, it is quite common for landlords to include a claim for interim rent if they expect the rent to go up. However, this can be a standalone claim, or the rest of the claim can be ended, leaving the issue of interim rent live.
Before a tenant considers making a claim for a new tenancy, they should consider whether they are confident that the new rent will be lower than the rent they are currently paying.
If they are, a claim for interim rent could be made at the outset, which puts pressure on the landlord. However, it is unwise for tenants to do so, and instead, we recommend parking the interim rent issues and leaving the landlord to make an interim rent application if necessary.
As we have highlighted above, the issue of interim rent is rarely straightforward. It is often an area negotiated and agreed upon between the parties rather than left to the Courts. We can advise landlords and tenants alike on what interim rent means for them and when to raise this during a renewal.
