Lease Renewals – Important Points to Consider
The Landlord and Tenant Act 1954 (the “1954 Act”) gives business tenants security of tenure, which means that the tenancy created by the lease will not automatically terminate at the end of the term. It also means that the tenant is entitled to apply to the landlord for a new lease on the same terms as the previous lease.
However, a landlord is entitled to oppose the grant of a renewal lease if it can establish one of the grounds set out in the 1954 Act.
In the case of Humber Oil Terminals Trustee Ltd v Associated British Ports (2011), the High Court held that the landlord could oppose the grant of a renewal lease to the tenant as the landlord intended to occupy the premises for its own business purposes (ground g).
Whilst this case does not contain any new law, it should be considered in more detail as some very interesting points were raised.
The tenant, which was a joint venture formed by two oil companies, had been granted a lease of the Immingham Oil Terminal (the “IOT”). Each company also owned an oil refinery which were being serviced by the IOT. The landlord opposed the grant of a renewal lease under ground g. This was a major concern for the tenant as it would end its exclusive use of the IOT.
If the landlord was successful, then the tenant could incur a cost of £10 million in removing its fixtures and fittings (although it would cost the landlord £60 million to replace the equipment). The tenant would also have to enter into an agreement with the landlord to continue to use the IOT in order to supply oil to its refineries.
If the landlord was unsuccessful, then it was proposing the rent under the renewal lease should increase from £4.2 million to £23.7 million.
The High Court decided that there was sufficient evidence to establish a ground g opposition. Further, the commercial reality was that the tenant would not incur substantial costs in removing its fixtures and fittings and was likely to enter into a supply agreement with the landlord.
Points to Consider
1. Costs – whilst a tenant may have security of tenure, it should carefully consider the costs that can be at stake in negotiating a renewal lease. This is particularly important if specialist equipment has been installed by the tenant at the premises and / or the location of the premises is crucial for the tenant’s business.
2. Tactics – the judge pointed out that a rival company could purchase the freehold interest in the site (more than five years before the end of the lease) and drive out the tenant under ground g. If the premises is of particular importance for a tenant’s business, then it should try and negotiate a right of first refusal and / or an option to purchase the freehold interest in the site.