Avoid The Court If You Can

Courts are often and increasingly keen to emphasise that litigation should always be a last resort, this case is a good demonstration that you shouldn’t let a small mistake cause a breakdown in communication. 

In Dukeminster Ltd v West End Investments (Cowell Group) Ltd, a Landlord, West End Investments, served a Section 25 Notice to start renewal negotiations or end the tenancy. They incorrectly served it in name of the previous tenant Dukeminster (UG) Ltd, rather than the current tenant, Dukeminster Ltd.

The tenant, took the view the notice was invalid and tactically served its own Section 26 Notice to ensure a lower interim rent would be payable.

As both tenant and landlord could not agree that the Section 25 notice was valid nor agree on the terms of the new lease, the matter proceeded to Court.

What did the Court find?

Caselaw, including the Mannai investment Co v Eagle Star Life Assurance Co Ltd [1997] AC 749, emphasised that the court must focus on how a reasonable recipient in all the circumstances would have understood the notice. It was obvious in this case that the error was a mistake, further shown by an error with an address of the building and that a “reasonable recipient” would have no reasonable doubt

Therefore, the Court found the section 25 notice was valid.

New Lease terms

Because the parties could not agree, sections 33-35 of the 1954 Landlord and Tenant Act requires the court to determine lease terms and that they are are “reasonable in all the circumstances” taking into account the terms of the current tenancy. The lease is limited to a maximum term of 15 years.

What the Landlord wanted

A 12 year term without a break at a rent of £475,000 a year, subject to four yearly upwards-only rent reviews

What the Tenant wanted

A five year term with an upwards or downwards rent review and, if the term were to be any longer than five years, a break option in the event that development works to an adjacent building prevented the tenant’s quiet enjoyment.

What the Court decided

The Court used guidance from the leading case of O’May v City of London Real Property Co Ltd [1983] 2 AC 726.

Section 34 provides that the rent payable under a renewal lease be “determined by the court to be that at which, having regard to the terms of the tenancy (other than those relating to rent), the holding might reasonably be expected to be let in the open market by a willing lessor.”

The Court held that a 10 year term appropriately and reasonable balanced the interests of landlord and tenant. The court also allowed a three month rent free period for fitting out based on the new open market letting examples adduced. Rent was ordered at £290,062.50 a year and interim rent at the same amount.

There was no rent review in the expired lease and there was no doubt that upwards-only reviews were the market norm. The Court did not interpret section 34 as giving weight to market forces and an upwards or downwards review took into account the actual market at the time of review. It was the most inherently fair type of review. There was no evidence to point towards the likely absence of a willing lessor if the review were to be upwards or downwards.

The Court found the insertion of a break clause would be neither reasonable nor appropriate. It reflected that whilst the redevelopment works nearby may have a short term negative impact, redevelopment happens routinely across Central London and measures would undoubtedly be taken to mitigate the impact. A break was incongruent with the terms of the existing tenancy and the proposed grounds for the break (subjective as they were) were an ‘invitation to future litigation’.

The Expert Evidence

Parties’ experts took a completely different approach to rent. The Tenant’s expert placed heavy emphasis on the likely impact of the nearby redevelopment works, the prohibition on subletting and the building’s refurbished condition.

However, the Tenant put forward no comparable evidence and the court found its approach failed to take account of the measures likely to be put in place to decrease the impact of the redevelopment works.

In contrast, the Landlord’s expert made good use of comparables and made suitable adjustments to reflect the actual building in comparison to the other buildings referenced.

The figure reached by the Landlord and which the Court accepted (with a rent free deduction) was more than twice that proposed by the tenant.

This case reiterates that the Court will, wherever possible, seek to find a balance between the interests and preferences of a landlord and tenant. It also confirmed that market forces will be an important, but not conclusive, factor in its decision-making.

Dukeminster Ltd v West End Investments (Cowell Group) Ltd CC (Central London)

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