Dear Beatrice

11 / 02 / 2016

Perplexed by property law? Beatrice Gallivan is on hand to answer your questions.

Q: I am the landlord of warehouse premises, the lease of which expired in December 2013.  A section 25 notice to terminate was served to expire in December 2013, following which the tenant applied to the court and has been holding over.  The proceedings have been stayed.  I was not anticipating any increase in the rent on renewal and terms of a new 5 year lease were agreed at the existing rent of £25,000 per annum.  The tenant has since then dragged its feet and the new lease has not completed. The tenant is finally willing to complete but is insisting that the new 5 year lease should commence from now, but at the passing rent from 18 months ago of £25,000 per annum.  In the meantime, the market has strengthened and the market rent is now £29,000 per annum.  Am I entitled to insist on the current market rent?  If so, what should the amount of the rent be for the period in between the expiry of the old lease and the commencement of the new one? 

A: The tenant’s proposal would mean that there would be no increase in rent effectively for a 7 year period, despite a significant rise in rental levels.  Assuming that the terms of the lease were only agreed in principle, and that there was no binding agreement (which is unlikely), you are entitled to go back to the tenant and insist on the rent of £29,000 per annum as the up to date market rent.  If a trial was to take place to determine the terms of the new lease, the valuation date for the rent would be the date of the hearing and the new lease would commence 3 months after this date. 

With regard to the rent payable to date, you are entitled to make an application for an interim rent in the current proceedings.  This would be payable from December 2013, being the earliest date for termination that could have been specified in your section 25 notice and would be payable until the time that the old tenancy comes to an end.  Although an application for interim rent has not yet been made, it can still be made in the current proceedings and would be effective from December 2013.  Indeed, it would be possible to make an application for up to 6 months after the termination of the current continuation tenancy.

With regard to the amount of interim rent, the default position is that the interim rent is at the same level as the rent payable under the new lease, in this case £29,000 per annum.  This will be the case unless the tenant can show that the interim rent would have been substantially different if it had been determined by market values prevailing at the date from when the interim rent runs (i.e. December 2013).  There is no authority to indicate whether the difference in market value between £25,000 and £29,000 (a 16% increase) will be sufficiently substantial.  Therefore, there may be the prospect of obtaining the increased rent of £29,000 per annum from December 2013 and your tenant may regret not having completed the lease previously.