In Iceland Foods Ltd v Castlebrook the court considered the often thorny issue of the length of term which a tenant should be granted in a lease renewal under the Landlord and Tenant Act 1954.
Under the Act, the court can grant a maximum term of 15 years. However tenants nowadays often want much shorter terms and BPF research suggests that the average commercial lease term is now around 5.8 years.
The case concerned a supermarket in Cheshire. The tenant, Iceland, sought a renewal lease for a term of five years. Its rationale was that the store was currently underperforming and it wanted to maintain flexibility in volatile market conditions. The landlord argued for a lease length of 15 years. It relied upon evidence suggesting that a 15 year lease term was standard in the supermarket industry and argued that a shorter term would adversely affect the value of its reversion.
The court decided that an appropriate lease term would be 10 years. In exercising its discretion, the court had to weigh up the interests of both parties and arrive at an outcome which protected the tenant’s business (which is what the Act is geared toward) as well as being fair to the landlord. The court felt that market evidence of average lease terms was of limited value and that each case would turn upon its own facts. The tenant’s understandable desire for flexibility was a relevant factor, as was the landlord’s desire to protect its reversion given the limited market for property of this type in the area. The length of the previous lease (42 years) was also relevant.
The clear message is that whilst market comparables may be all important in determining rent, they are of limited value in assessing the length of term. Instead, the parties will need to present specific evidence as to why they require a particular length of term which will be determined at the discretion of the court.
Iceland Foods Ltd v Castlebrook Holdings Limited [2014] PLSCS 95