womblebonddickinson com Interim Rent Vicki Young Womble Bond

womblebonddickinson. com Interim Rent Vicki Young Womble Bond Dickinson (UK) LLP 13 November 2018

The basics • Section 24 (C) of the Landlord and Tenent Act 1954 (the Act) – interim rent where a tenant is granted a new lease of the property comprised in the existing lease and the landlord does not oppose renewal. • Section 24 (D) of the Act – interim rent in any other case p 2

The easy bit • If a new tenancy of the whole of the property comprised in the current tenancy is granted to the tenant the rent payable under the new tenancy shall also be the interim rent. • But there are exceptions

Problem ? • A tenant is granted a new 5 year tenancy of the whole of the premises and the landlord did not oppose renewal. The new tenancy has a 12 month rent free period following which a rent of £ 500, 000 p. a is reserved. Is the interim rent – A) £ 500, 000 p. a (the rent first payable after the rent free period pursuant to the new tenancy) B) £ 400, 000 p. a C) Nil?

The first exception – The Change in Market Exception • In order to establish if this exception applies the following exercise should be carried out: - The rent payable under the new tenancy should be established; - The rent which would have been payable if the new tenancy had been granted on the interim rent start date should be established; - The two valuation should be compared to see if the difference between them is substantial; and - If the difference is substantial the interim rent will be the rent which would have been payable under the new lease had it been granted on the interim rent start date.

Problem A landlord served a notice to end the tenant's tenancy on 24 December 2013. In this case this is also the interim rent start date. The passing rent was £ 500, 000 p. a and the market rent was £ 600, 000 on this date. A new 5 year lease was granted to the tenant on 25 March 2018 under which a rent of £ 300, 000 p. a was reserved. What is likely to be the interim rent? A ) £ 500, 000 B) £ 300, 000 C) £ 600, 000 D) A totally different amount?

The second exception – The Different Terms Exception In order to establish if this exception applies the following exercise should be carried out: - The rent payable under the new tenancy should be established; - The rent which would have been payable if a new lease had been granted on the same terms as the current lease should be established; - The two valuations should be compared to see if the difference between them is substantial; and - If the difference is substantial the interim rent will be the rent which it is reasonable for the tenant to pay during the interim rent period.

What is it reasonable for the tenant to pay? • The reasonable rent must have regard to such rent as would be determined in accordance with s 34 on the same terms as the existing lease and for the duration of the new tenancy having regard to: • The rent payable under the terms of the old tenancy • The rent payable under any sub-tenancy

Problem The tenant has been granted a new lease with a landlord's redevelopment break option (the current lease does not contain a break option) for a term of 10 years. The passing rent was £ 500, 000 p. a, the market rent is £ 400, 000 p. a and the rent payable under the new lease is £ 200, 000 p. a. What is likely to be the interim rent? A) £ 500, 000 B) £ 200, 000 C) £ 400, 000 D) Another amount?

Section 24 D • Section 24 D applies to the amount of interim rent which is payable in any case where Section 24 C does not apply, for example: - New tenancy of part only; - Landlord opposed renewal and no new lease is granted; - Landlord opposed renewal and a new lease is granted; or - The lease renewal proceedings are discontinued.

How is the interim rent determined under Section 24 D • The interim rent will be the rent which it is reasonable for the tenant to pay while the relevant tenancy continues. In determining this the court will have regard to: • The rent payable under the terms of the relevant tenancy (ie the existing tenancy) • The rent payable under any sub-tenancy but otherwise such rent as would be determined in accordance with s 34 if a new tenancy from year to year of the whole property comprised in the relevant tenancy were granted to the tenant

Problem The passing rent under the existing lease was £ 500, 000. The rent from year to year which would have been determined pursuant to Section 34 as required by Section 24 D would be £ 1, 200, 000. Is there any argument which the Tenant could deploy to attempt to have interim rent assessed at a lower level?

Tips • Agree interim rent • Consider whether you should attempt to avoid the strict rule in S 24 C(2) by applying the exceptions • Consider whether S 24 D applies. If it does the court has a discretion to set a reasonable rent.