Early Break Clauses and 1954 Act Lease Renewals

Jan 05, 2017

There is relatively little commentary about cases dealing with uncontested lease renewals, but Britel Fund Trustees Limited v B&Q Plc [2016] provides us with an example of the stark effect of an early break clause in the context of a 1954 Act lease renewal.

B&Q is a tenant at the Tottenham Hale Retail Park. Negotiations for a new lease began in 2015 and the parties agreed that the term of the new lease would be 10 years with a six month rolling break notice which would allow either party to terminate the lease upon giving six months’ notice from 30 June 2018. The premises appeared to have been over-rented at £21 per square foot per annum and Britel contended that the rent should be £18.90 per square foot.  

The rent was decided by the County Court and the judge’s approach was to first determine that the rent would be £16.30 per square foot if the new lease did not contain any break clause. As both parties had the benefit of a mutual rolling break clause, the judge found that the only class of tenant likely to be interested in the premises was a discounter, like Aldi or Lidl, which would carry out a quick and cheap fit out to create a basic shop. This resulted in a rental discount of 22.55% which equated to an annual rent of £12.562 per square foot. 

Britel’s intention to redevelop the Retail Park formed the background to the negotiations and the evidence showed that its plans were sufficiently far advanced that the planned redevelopment could commence in June 2018. Given that B&Q was only likely to be able to trade from the premises for around two and a half years, a further discount was applied to the rent which gave a final rental figure per annum of £10.10 per square foot. 

The court also usefully reiterated the hierarchy that should be applied to the court’s consideration of comparable evidence:

  1. Open market lettings
  2. Agreed rents under 1954 Act renewals
  3. Agreed rent reviews
  4. Expert and arbitral determinations
  5. Court decisions. 

The total reduction to be applied to the rent was 38%. Whilst this case is only a County Court decision, landlords should be aware of the effect that an early or rolling break clause or any other non-standard provisions could have in depressing the rent if the effect of the clause is to limit the class of tenants likely to be interested in the premises. In this case the existence of the break clause and the likelihood that Britel would exercise this because of its redevelopment plans resulted in a significant reduction to the rent.   

Alex Haddad

About the author

Alex Haddad

Alex joined Nockolds in 2011 and is a Principal Associate in our Commercial and Property Litigation Team. Before joining the firm Alex studied law at ...

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