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Stephen Jourdan KC appears in 1954 Act rent case

On 18 November 2022, HHJ Richard Roberts handed down judgment in Old Street Retail Trustee (Jersey) 1 Ltd v GB Healthcare.

Stephen Jourdan KC, instructed by Ron Hogan and Laura Mortimore of Dewar Hogan, appeared for the landlords.

This was an uncontested renewal of a lease of a 2,000 sq ft shop unit at 199 Old Street, London EC1 under the 1954 Act. The only issue was the rent payable under the new lease determined under s.34. It was agreed that the interim rent should be the same as the new rent.

The passing yearly rent, determined on rent review in March 2015, was £40,250.

The yearly rents under s.34 contended for and determined were as follows:

Landlords                    £148,000

Tenant                         £45,000

Court                           £112,000

How the Judge arrived at the s.34 rent

The Judge arrived at the rent of £112,000 p.a. as follows:

  • The starting point was a Zone A rent of £192 psf which the Judge considered was the pre-Covid-19 market rent derived from the lettings of other units in the parade containing the unit.
  • Having regard to Covid-19 and the significantly deteriorating economic environment, a reduction of 25% should be made to £144 psf.
  • That was multiplied by the area of the unit’s area ITZA of 781 to produce £112,464, which he rounded down to £112,000.

The selection of comparables

The most important issue by far, in terms of the impact on the rent, was the selection of the comparables.

On this issue the Judge agreed with the evidence of the landlords’ expert, Alasdair Scott of Nash Bond, that the most reliable evidence came from the parade of which the unit formed part. The Judge accepted Mr Scott’s evidence that it was appropriate to rely on the evidence of open market lettings in the parade to Marks and Spencer and Aldi, and to analyse them using the zoning method, even though they were food stores.

Adjustment for the lack of a fitting out rent-free period

The rent under s.34 is payable from day 1 under the new lease. However, when shop units are let in the open market, a rent free period is invariably allowed. Typically, part of this is to reflect the need to fit out the unit, and part as an incentive.

There is a long-standing debate about whether the s.34 rent should reflect the absence of a fitting out rent-free period. This has been considered by numerous county court judges, but there are no appellate decisions.

The most recent of those cases prior to the present was HPUT Trustee No 1 v Boots UK (unreported decision of HHJ Dight CBE sitting in the County Court at Central London, 24 May 2021). In that, it was held that the s.34 rent should not be reduced to reflect the fact that the new lease provides for the rent to be payable from day 1, with no fitting out rent-free period.

HHJ Richard Roberts disagreed with that decision, and agreed with the five other county court decisions in which the opposite result was reached. He considered that the correct approach was to analyse the comparables to assess what rent would have been paid for them if no rent-free period had been allowed, and then to use that to determine the s.34 rent for the subject unit.

Admissibility of arbitration award

The tenant sought to rely on an arbitration award determining the rent of the unit next doors, let to Argos. The landlords successfully objected to this, relying on Land Securities plc v Westminster City Council [1993] 1 WLR 286.

Exclusivity adjustment

The tenant used the unit as a pharmacy, trading as “Apex Pharmacy”. The new lease agreed between the parties included a covenant by the landlord not to permit any other unit in the parade to be used as a pharmacy.

Mr Scott considered that this exclusivity was valuable and added 2.5% to his assessment of the rent because of it.

The Judge rejected that adjustment. He held that disregards in s.34(1) mean that factors which could lead the actual tenant to pay a higher rent are not considered when assessing the market rent. The tenant for the purposes of valuing the rent under s.34 is a hypothetical tenant. Under s.34(1)(d), the licence which permits the real tenant to trade as a dispensing chemist was to be disregarded. A hypothetical tenant, who might not even be a chemist, would not pay an additional sum for an exclusivity clause preventing other tenants in the Parade from trading as a dispensing chemist. He also said that the evidence did not support an adjustment of 2.5% in any event.

 A copy of the judgment can be found here.

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