S Franses Ltd v The Cavendish Hotel (London) Ltd

The County Court has just given judgment on the renewal terms of S Franses' lease at 80 Jermyn Street, London. It will be recalled that, before the pandemic, S Franses defeated its landlord's opposition to renewal under ground (f) of the 1954 Act, in high profile litigation before the Supreme Court. 

S Franses thus being entitled to a renewal lease, the Court has recently determined the disputed terms of that lease, its rent and the interim rent under the 54 Act that was payable for the five years whilst the litigation had been ongoing. 

Analysis of expert evidence

The judgment will be of interest to expert valuers as an illustration of how the Court can treat valuation evidence. The judge was critical of the evidence from the experts for both landlord and tenant, finding that:

  • The tenant's expert relied too heavily on a comparable that, in fact, was only his "gut feeling" as to rental level and not an actual market transaction; and
  • The landlord's valuer for being a "landlord" adviser and thus approaching the valuation task with "landlord-tinted spectacles".

The judgment sets out clearly how the court treated the evidence before it to reach a conclusion as to what the rent for the renewal lease should be, and any valuer who writes valuation reports for lease renewal cases should review the court's analysis and methodology.

Interim rent under 54 Act

Of wider interest is the way the Court analysed what the interim rent should be, over the unusually long five year period for which interim rent had to be assessed ie from the start of the 54 Act procedure until the new lease commences (2016 to 2021). Over that period rent levels in the area had fluctuated from being relatively buoyant in the early years to latterly being adversely affected by COVID. 

Whilst interim rent on an unopposed renewal is normally set at the same level as the renewal lease rent, where (as here) the renewal had been opposed by the landlord, the Court must assess "a rent which it is reasonable for the tenant to pay" under section 24D of the 54 Act.

This, the Court found, requires a three stage process:

  1. Identify the rent for a tenancy from year to year in the open market, the valuation date being at the start of the interim rent period in 2016
  2. Consider whether any modification might be required because of the rent level under the prior tenancy (often referred to as "cushioning")
  3. Ensure that the determined rent is one that is reasonable for the tenant to pay bearing in mind the benefit conferred under the tenancy.

Bearing this process in mind, the Court found that:

  • The passing rent in 2016 was £220,000.00 per annum
  • The rent under the renewal lease was found to be £102,000.00 per annum
  • The market year to year tenancy rent as at 2016 would have been £140,650.00 per annum
  • The reasonable rent over the interim rent period would be assessed at £160,000.00 per annum.

In reaching a conclusion at £160,000.00 per annum for the five year period, the Court said that:

  • No adjustment needed to be made for "cushioning" in this instance
  • The "reasonable" figure must balance the interests of both landlord and tenant
  • Although the relevant "valuation date" was 2016 that did not mean that the Court could not take into account market factors and fluctuations over the entire interim rent period after 2016
  • The Court should consider the benefit actually received by the tenant under its "held over" tenancy for the period, taking into account market fluctuations (both upwards and downwards by reason of COVID)
  • £140,650.00 would be too low for the first 3.5 years of the period as passing rents were much higher (e.g. £220,000.00 per annum)
  • £220,000.00 was too high as the tenant had to live through the uncertainty of the renewal litigation over this period and could not properly plan for the future of its business
  • The renewal rent of £102,000.00 per annum (whilst possibly too high for the lockdown period) would be far too low for the whole interim rent period.

This judgment, therefore, is a rare example of the Court analysing how the "reasonable" rent is to be assessed over an interim rent period, and is a reminder that the year to year rent as at the valuation date is only the starting point of the required assessment. 

This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.