A High Court judge has decided that the rent of a Central London textile dealership, S Franses, should be set at £102,000 per annum under its new lease – less than half of the £220,000 the company was paying before its previous lease expired in 2016.
The judge also ordered the landlord, the Cavendish Hotel, to pay a rebate of around £330,000 as a result of overcharging on rent in the six-year interim period between the expiry of the old lease and the granting of the new one.
S Franses Limited v The Cavendish Hotel (London) Limited  marked the end of a protracted dispute between the two parties stretching back to 2015, when the tenant first applied to renew its two leases of 80 Jermyn Street under the Landlord and Tenant Act 1954.
The hotel refused, stating it had intentions to redevelop the property (one of the few grounds on which a landlord can refuse to renew a tenant’s lease under Section 30(1) of the Act), with the ensuing court battle culminating in a landmark Supreme Court victory for the tenant.
In the two years following the Supreme Court case, neither party had been able to agree on an appropriate rent for the new lease, resulting in a return to court.
The impact of COVID-19
The impact of the pandemic was discussed at length during the hearing, with the landlord’s expert valuer conceding a ‘COVID’ discount “in excess of 30%” would be appropriate in response to plummeting rental values in the West End during the course of the crisis.
However, the judge applied a traditional ‘rent zoning’ method, according to which a retail premises is divided into zones that reduce in value the further they are from the front of the store.
Using this method, the judge found that a rent of £102,000 was appropriate when compared with recent post-COVID evidence.
In the time since the Supreme Court ruling, the landlord and tenant had also been unable to agree on an appropriate interim rent that should apply between the expiry of the previous lease in 2016 and the granting of a new one in 2021.
Normally, lease renewals are subject to Section 24C of the 1954 Act, which provides that, under most circumstances, the interim rent should be the same as that agreed under the renewal lease (in this case, £102,000).
However, as the landlord had initially refused the rent renewal, the assessment of the rent proceeded under Section 24D. This does not assume the interim rent and renewal rent will be identical, but instead calculates rent based on what a tenant would pay “from year to year”.
Due to the sharp fall in rental values in 2020 and 2021, the judge concluded that £102,000 was too low a sum for the years prior to the onset of the pandemic. The historic market value of properties on Jermyn Street over time was examined and used to apply an interim rent of £160,000 per annum.
An interesting case
The judgment concludes an interesting case which provides a valuable insight into how courts may approach to rent valuation cases in the future, in light of the steep decline of rental values in the capital following the COVID-19 pandemic.