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What’s Ahead in 2021 For Commercial Lease Renewals?

Rob Nicholson, Partner at Ashfords and Andrew Walker QC, Barrister at Maitland Chambers, comment

Will the pandemic and its economic impact mean that tenants want shorter terms and/or break clauses, and will they get them?

The courts will continue to strike a fair balance between landlords and tenants, but it is not yet clear what effect the pandemic might have on judges’ perceptions of what is fair and reasonable.

The market was recently reminded in Vodafone v Hanover Capital (2020) that the primary purpose of the legislation is to protect the tenant in carrying on its business, and that the length of term likely to be granted in the open market is of only limited assistance in deciding what new term length is “reasonable”. The court’s aim is to balance the protection to which the tenant is entitled with the need to avoid a decision that is unfair or oppressive to the landlord.

We may well see tenants using long term financial viability as an argument for shorter, more flexible terms (as was done successfully by some in the early 1990s recession: Rumbelows v Tameside MBC (1994)); but the outcome in the Vodafone case shows that there are limits to this.

Can the court change the lease terms to shift the risks of a resurgence of the pandemic, a new pandemic, or some other forced closure from the tenant to the landlord?

A sufficiently compelling case could succeed, but much will depend on the circumstances of individual cases, what is fair in those circumstances, and how the market develops.

How will renewals be affected by lease variations (or short extensions) made in response to the pandemic?

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