Kwik-Fit Properties Ltd v Resham Ltd [2024] EWCC 4
This County Court lease renewal case under Part 2 of the Landlord and Tenant Act 1954 (“LTA 1954”) relates to the tenant’s attempt to include a break clause in a renewal lease and is a notable application of the Court’s approach to determining renewal lease terms set out in the leading case of O'May v City of London Real Property Co Ltd [1983] AC 726 (“O’May”).
Facts
This case concerns the well-known fast-fit car servicing company Kwik-Fit, following a claim brought against their landlord, Resham Limited. On 10th February 2021, Kwik-Fit served a tenant’s notice pursuant to section 26 LTA 1954, requesting a new tenancy granted from 10th November 2021. Previously, Kwik-Fit had occupied the property pursuant to a 25-year lease term dated 9th April 1996. No counter-notice was served by the Landlord opposing the grant of the new tenancy, and the grant of a new 15-year lease was agreed.
However, the parties were in dispute on three critical lease terms. Firstly, Kwik-Fit attempted to insert a tenant-only break clause exercisable every 5 years. Secondly, Kwik-Fit attempted to cap their repair and maintenance obligations of the access road near the property to one-third of the total costs. Thirdly, the amount of rent which should be charged. The case is notable for the fact it deals with the tenant’s attempt to include a break right in a renewal lease, whereas most reported cases relate to landlords break rights. This case summary will therefore focus on the Court’s treatment of the proposed introduction of the tenant-only break clause into the renewal lease terms.
Court Decision
The County Court judge restated the general propositions to which the Court will have regard in determining the new lease terms under section 35 LTA 1954, by reference to the leading case of O’May, namely:
the Court must first consider the terms of the existing tenancy;
the burden of persuading the Court to impose a change rests on the person proposing the change;
the change must be fair and reasonable;
there must be a good reason, based on fairness, to impose the proposed new term;
otherwise the discretion is wide;
the LTA 1954 is not intended to ‘petrify’ the terms of the existing tenancy: in some cases, especially where the lease is an old one, the existing term sought to be substituted may be out of date or unsuitable.
The County Court judge also made a significant further point. It was commented that any submission that a change in a term will be fair because there will be a resulting alteration in the (market) rent agreed or determined pursuant to section 34 LTA 1954, should be treated with caution.
The proposed tenant-only break clause
The Court began its examination of the break clause by stating it was a term which fell within section 35 LTA 1954, and should therefore be dealt with by reference to the principles set-out above. Kwik-Fit’s contentions as to why the break clause should be allowed, were threefold. Firstly, that Kwik-Fit’s operations were in a state of constant, unpredictable change, and therefore a break option at 5-yearly intervals was appropriate. Secondly, that by virtue of the first reason, it has become Kwik-Fit’s policy to adopt 5-yearly breaks in their leases. And thirdly, that Kwik-Fit’s policy set out in their second point reflects the market practice in the quick fit care maintenance service industry, and to not insert the break clause would be to unfairly “petrify” the terms of the previous lease.
The Court determined that there was no real possibility that Kwik-Fit would need to terminate the lease because of the premises becoming unsuitable for carrying out their business. Instead, the Court viewed this attempt as merely a desire to retain maximum flexibility. Judge Davis-White KC commented that Kwik-Fit could have agreed a shorter lease, or mutual break clause but chose not to, adding that market practice does result in tenants in that relevant line of business accepting leases without break clauses. The Court further recognised that the proposed clause was an unrestricted right to break, meaning Kwik-Fit could have broken the lease for reasons wholly removed from the reasons why the clause was initially allowed. On that basis, the Court determined that it was not fair and reasonable to include a tenant’s break clause.
Significance of the ruling
This judgment, made in the County Court, has clear significance when determining how the Court will approach the proposed introduction of tenant-only break clauses in LTA 1954 lease renewals.
The judgement reemphasises that any new terms proposed in a renewal lease must be fair and reasonable, by reference to the established O’May principles. A tenant seeking to rely on general policy considerations of ‘one-sided flexibility’ for the insertion of a break right, as opposed to factors affecting the premises demised, will therefore be unlikely to meet this threshold.
This case therefore serves as a reminder that during the drafting of the renewal lease, the negotiation period is a crucial one, and proper thought should be given to the reasons behind every proposed departure from the terms of the existing tenancy.
