The case of WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft MBH is one of the few decisions we have seen so far indicating how the Courts are approaching the impact of COVID-19 in unopposed lease renewals under the Landlord & Tenant Act 1954.
The above case concerned an application under the 1954 Act by WH Smith for the grant of a new tenancy of its branch in the Whitfield Centre, Shepherds Bush. The issues the Judge was asked to determine included the rent payable under the new tenancy and the nature of the trigger for a pandemic rent suspension clause. WH Smith proposed that the new lease should contain a pandemic rent suspension clause to be triggered in the event that non-essential retailers are compulsorily required to cease trading. The landlord rejected this proposal, and contended that the trigger event should be the tenant itself being compulsorily required to cease trading. In a nutshell, the landlord argued that because the premises from which WH Smith operated contained a post office which was designated as essential retail and therefore not required to close, the trigger should not operate. On the other hand, the tenant, WH Smith, argued that although the branch continued to open, due to the wider impact of the lockdown sales were down by over 90% and therefore the unit had become unprofitable.
The Judge decided that the rent suspension trigger proposed by the landlord was too narrow and that it did not work in practice. The Judge preferred the tenant’s proposal and ordered that the new lease should include wider trigger event.
On the issue of the rent payable under the new lease, the parties’ experts agreed that there should be a 20% discount to reflect the impact of COVID-19 on the relevant market. However, the landlord argued that there should be a 10% uplift in the rent to reflect the benefit of the rent suspension clause proposed by the WH Smith. On this point, the Judge considered the comparable evidence and the wider retail market and decided that no uplift should be applied. One of the reasons for the Judge’s decision was that pandemic rent suspension clauses had become standard in the course of the pandemic and therefore have no effect on rental values in the market. Accordingly no upwards adjustment was required.
In general the case highlights that pandemic rent suspension clauses have become the norm rather than the exception and that this is not something tenants should pay extra for in the form of an uplift in rent.