The County Court in the recent case of Dukeminster Ltd v West End Investments (Cowell Group) Ltd explored the concept of ‘reasonable recipient’, where it was claimed that a notice served by a landlord under the Landlord and Tenant Act 1954 S.25 had incorrectly named the wrong recipient and referenced the wrong building.
Facts of the Case
The landlord held a headlease of a self-contained office building in central London. In 1989, an underlease of the property had been assigned to Dukeminster Limited, who in turn had assigned the underlease to its wholly-owned subsidiary, Dukeminster (UG) Limited, in 1999.
In 2016, the landlord, anticipating expiry of the underlease, served a notice under Section 25 of the Landlord and Tenant Act 1957. The notice proposed a new 12-year tenancy without break at an initial rent of £475,000 per annum, subject to four-yearly upward-only rent reviews. The notice was accompanied by a Section 40 notice.
Unfortunately, the solicitor responsible for drafting the notices incorrectly put the Dukeminster Limited's name on the notices rather than that of the subsidiary. Both notices also referred to the wrong building.
The tenant claimed that the Section 25 notice was invalid. It later served a Section 26 notice on the landlord, which it claimed was the applicable termination notice.
The court was called on to:
- determine whether the landlord’s Section 25 notice was valid or not; and
- decide the terms of the renewal lease.
The notices had to be construed objectively by considering how a ‘reasonable recipient’ would have understood them.
The court noted the close connections between the two companies, including that the directors of Dukeminster Limited were also the directors of Dukeminster (UG) Limited.
A reasonable recipient would have had no reasonable doubt as to how the S.25 notice was to operate and in respect of which company. The S.25 notice had served the purpose of notifying the tenant that the landlord was bringing the tenancy to an end, but that it was not objecting to a renewed tenancy in principle. This part of the proceedings, therefore, had to be dismissed.
Term of a new lease
The existing lease term had been 51 years. The tenant was seeking a 5-year term for the new tenancy. The landlord was seeking a 12-year term. The Court held that a 10-year term appropriately and reasonably balanced the interests of the landlord and tenant and was consistent with relevant comparative lettings evidence provided by the landlord.
Rent review clause
In all circumstances, the court considered that the appropriate and inherently fair and reasonable rent review clause was one allowing for upwards and downwards reviews after 5 years, to account for any market changes.
The refusal of the landlord's request for an upwards only rent review is perhaps surprising. Upwards-only reviews are still market standard in most sectors. However, this case shows that the courts may view upwards/downwards reviews as a fairer approach, particularly where, as here, there was no review in the original lease. Where the original lease does contain a rent review, the courts are more likely to follow its terms closely.
The tenant wanted the ability to terminate if a development next door proved unbearable.
The court applied the same test; whether there is a real possibility that the tenant would need/wish to exercise that break clause, and if so, who should shoulder the burden of that event?
The court held that the insertion of a break clause was neither reasonable nor appropriate. The tenant's fear that it would be deprived of its quiet enjoyment of the building due to neighbouring development work during the term of the lease was “unwarranted, speculative and fanciful”.
The tenant then argued that the property would be practically unlettable due to the development next door other than on very favourable terms. They sought a reduction to the rent on this basis.
The court rejected the tenant’s arguments and instead accepted the valuation proposed by the landlord's valuer; which was grounded by references to comparative lettings. On that basis, the court determined that the rent under the new tenancy was to be £290,062.50 (a compromise from the proposed £475,000), with interim rent payable at the same rate.
Litigation should always be a last resort to any dispute and this case may easily have been avoided by proper and careful drafting by the solicitor acting for the landlord.
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