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Rent

Section 34 of the Landlord and Tenant Act 1954

Section 34 is the key provision which governs how the court will determine the rent under a new tenancy:
    (1)The rent payable under a tenancy granted by order of the court under this Part of this Act shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may 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, there being disregarded—

      (a) any effect on rent of the fact that the tenant has or his predecessors in title have been in occupation of the holding,
      (b) any goodwill attached to the holding by reason of the carrying on thereat of the business of the tenant (whether by him or by a predecessor of his in that business),
      (c) any effect on rent of an improvement to which this paragraph applies,
      (d) in the case of a holding comprising licensed premises, any addition to its value attributable to the licence, if it appears to the court that having regard to the terms of the current tenancy and any other relevant circumstances the benefit of the licence belongs to the tenant.

    (2) Paragraph (c) of the foregoing subsection applies to any improvement carried out by a person who at the time it was carried out was the tenant, but only if it was carried out otherwise than in pursuance of an obligation to his immediate landlord and either it was carried out during the current tenancy or the following conditions are satisfied, that is to say,—
    (a) that it was completed not more than twenty-one years before the application for the new tenancy was made; and
    (b) that the holding or any part of it affected by the improvement has at all times since the completion of the improvement been comprised in tenancies of the description specified in section 23(1) of this Act; and
    (c) that at the termination of each of those tenancies the tenant did not quit.

    (3) Where the rent is determined by the court the court may, if it thinks fit, further determine that the terms of the tenancy shall include such provision for varying the rent as may be specified in the determination.

    (4) It is hereby declared that the matters which are to be taken into account by the court in determining the rent include any effect on rent of the operation of the provisions of the Landlord and Tenant (Covenants) Act 1995.


Disregards

Lack of access

J Murphy & Sons Ltd v Railtrack plc
[2002] EWCA Civ 679

New lease of land that had previously been a former railway goods yard. Railtrack was the landlord. T could only obtain access via his own land. Landlocked land would obviously have less value than land with access. Thus, in order to obtain a higher rent, L argued that the lack of access was a matter to be disregarded, in addition to the disregards expressly set out in s34. Alternatively, L argued the court should include a right of access in the new lease. Both arguments were rejected. Cases based on rent review clauses were not found to be helpful.


Passing rent

Relevance?

Trans-World Investments Limited v Anita Dadarwalla
[2007] EWCA Civ 480.

Introduction

Not many cases are decided on appeal in relation to the rent to be paid under a new tenancy but this is one of them. Section 34 of the Landlord and Tenant Act 1954 provides that:
    "The rent payable under a tenancy granted by order of the court under this Part of the Act .. may 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 subsection directs that certain matters are to be disregarded. They do not include the rent payable under the previous lease.

The issues

The principle issue in this case was whether or not the judge was wrong to disregard the passing rent of the subject property under the lease. The judge also disregarded valuation evidence of a neighbouring property as a "rogue figure" on the basis that there was no evidence as to the circumstances in which the rent was calculated.

Decision

The CA held that he was wrong on both counts. Mummery LJ at para 30:
    "In my judgment, the judge was wrong to disregard the passing rent and the rent of No 106 on the basis stated by him. The rents under the current lease and of the adjoining property at No 106 are relevant valuation evidence of market rent of the Property without the need for the court to require the party relying on those rents to produce positive evidence of the circumstances in which they were determined. Rather it is for the party who challenges the relevance of the passing rent and/or the rent of the adjoining property to adduce evidence of circumstances relied on to show that the rents are not relevant factors in the valuation exercise of determining the open market rent."
The judge was wrong to leave the passing rent out of account "on the basis that there was no evidence of the circumstances in which the passing rent had been negotiated in the past." (para 28). He was also wrong to disregard the rental figure for the neighbouring property simply because there was no evidence of how it was negotiated (para 29). The case was remitted back to the county court (Chancery List) to be retried.


Flanders Community Centre Ltd v London Borough of Newham
[2016] EWHC 1089 (Ch)

Summary

In proceedings for renewal of a lease to a community association, which contained a number of unusual (and possibly onerous) provisions relating to use and repair, the court held that rent should be £1pa. The High Court confirmed that, in the absence of error or serious procedural mishap, it would not interfere with a lower court’s decision.

Facts

A local authority landlord (L) granted a lease of a community centre to a tenant (T) for a term of seven years at an annual rent of £1 (if demanded). The lease further provided that T should carry out various works to the premises within a certain timescale, failing which the rent would increase to £1200 pa. The lease differed from a typical commercial lease in that it contained a number of provisions (some potentially onerous) that related to the property's use as a community centre.

When the lease came to an end T remained in occupation under the provisions of the Landlord and Tenant Act 1954. The parties then entered into negotiations but ultimately proceedings were issued by T for a new lease.

The parties were unable to agree the level of rent under the renewal lease. Section 34 of the Landlord and Tenant Act 1954 (above) relates to the new rent. Unlike s35 of the 1954 Act (which is concerned with the other provisions of the new lease apart from its duration), there is no automatic default to the terms of the old tenancy, although the passing rent is a relevant factor to take into account (Trans-World Investments Ltd v Dadarwalla) [2007] EWCA Civ 480 - see above). The parties applied to the County Court, which heard expert evidence on behalf of both T and L as to the level of rent.

First instance

In view of the nature, and terms of the original lease, both experts struggled to find comparables. T’s expert concluded that the property had no market value, and that the new lease should be at an annual rent of £1. L’s expert, although finding comparables in terms of property, was unable to establish the letting terms of the comparable properties and suggested a rent of £16,000pa. Her Honour Judge Faber (criticizing weaknesses in both experts’ evidence) concluded that there was no adequate evidence as to market rent and held that the rent under the new lease should be at the same rate as the old lease, namely £1pa. L appealed.

Decision on appeal

The High Court dismissed L’s appeal. The High Court referred to the reasons why an appellate court will not lightly interfere with the original trial court's decision, as summarised by Lewison LJ in Fage v Chobani [2014] EWCA Civ 5. Norris J said, highlighting certain of those observations:
    “First, I should not interfere with Judge Faber's findings of fact unless compelled to do so. Second, the trial is not a dress rehearsal. The trial before Judge Faber was the first and last night of the show. Third, in making decisions, Judge Faber will have had regard ‘to the whole sea of evidence presented to her whereas an appellate court will only be island-hopping’. Four, the primary function of Judge Faber was to find facts and identify crucial legal points and advance reasons for deciding them in a particular way. Her duty was to give reasons in sufficient detail to show the parties and, if need be, the applicable court the principles on which she acted and the reasons that led her to her decision. She was not obliged to give reasons that were elaborate. Last, she cannot be expected to deal in detail with matters that were not in dispute before her.”
In the court’s opinion, the judge at first instance had been entitled to conclude that there was no reliable evidence before the court of the current letting value of the property, and so was entitled to place weight on the passing rent when reaching a decision as to the rent payable under the new lease.


Fresh evidence on appeal

Comparables

Clear Call Limited v Central London Investments Limited
[2016] EWCA Civ 1231

Summary

The Court of Appeal upheld a decision of the High Court that it had been entitled to refuse to admit fresh evidence on an appeal about a new rent under Part II of the Landlord and Tenant Act 1954. The fact that the relevant date for the purposes of determining the terms of the new tenancy was the appeal date rather than the trial date did not mean that the court had little alternative but to admit fresh evidence.

More detail

T also sought to have the fresh evidence admitted, arguing that the effect of Davy’s of London (Wine Merchants) Ltd v City of London Corp [2004] EWHC 2224 (Ch) was that a court hearing an appeal about a new rent under Pt II had little alternative but to admit fresh evidence, because the relevant date for the purposes of determining the terms of the new tenancy was the appeal date rather than the trial date.

The Court of Appeal disagreed.

The effect of decision in Davy’s was not that a court hearing an appeal about a new rent under Part II of the Act had little alternative but to admit fresh evidence. The fresh evidence in that case had been fundamentally different to, and of far greater consequence than, the fresh evidence in the instant case. Further, it had been admitted and subjected to cross-examination by agreement. Whilst there were dicta suggesting that certain types of dispute as to the terms of a new tenancy might lend themselves to the ready admission of fresh evidence, as the dispute in Davy's had been about the terms of a redevelopment break clause, it turned on an evaluation of future rather than past events.

The issue in the instant case had nothing to do with future events. The question was whether the judge had properly relied on the historic transaction as a comparable. No more recent comparables or evidence about market rent had been proffered on the instant appeal or before the High Court. The High Court had been entitled to reject the fresh evidence; it failed the Ladd v Marshall tests for admitting fresh evidence.


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