Renewal leases, interim rents and the cautionary use of “subject to contract"

A recent case Boots UK Ltd v Goldpine Estates Ltd (2014) highlights the distinction between assessments for interim rent under the  Landlord and Tenant Act 1954 and provides a useful reminder that the phrase “subject to contract” should be used with caution.

In this case, Boots occupied a retail unit under a protected lease.  They sought to renew their lease and the landlord did not oppose the application. Nonetheless, Boots applied to the court for a new lease in order to protect its position.

The court proceedings were then stayed so that the parties could negotiate terms. The terms were eventually agreed but not signed. The parties expressed the terms to be “subject to contract and without prejudice”. The court was informed of this and that the only outstanding issue between the parties related to interim rent.

However, the county court found that as the terms remained subject to contract the court could determine the lease terms notwithstanding they had already been negotiated between the parties. In addition the court ordered an assessment of interim rent under section 24D of the 1954 Act, meaning the court could set the rent on a year by year basis.

On appeal from the county court, it was found that the parties had agreed terms and the court ordered the landlord to grant a new lease on those terms and directed an assessment of the interim rent under section 24C of the 1954 Act, meaning the eventual agreed rent for the new lease would be backdated.

On further appeal the court of appeal agreed with the original decision that the parties had not agreed terms. The correspondence between the parties’ solicitors showed that the terms were not agreed for the purposes of the 1954 Act, and that they knew that they might not be binding. Therefore, the court had an absolute discretion in determining the terms of the new lease.

On interim rent, the court of appeal agreed with the appeal judge that assessment under section 24C applied as the landlord had not opposed a new lease. An assessment under Section 24D applies where a landlord has opposed the lease renewal and the county court judge was wrong to initially direct such an assessment when this was not the case. 

The case is a helpful reminder on two issues:

  1. A contract can be created if the parties’ conduct demonstrates that a contract is in place and they may be bound notwithstanding the use of “subject to contract”. 
  2. The distinction between the methods for assessing interim rent. A Section 24D assessment of rent (when the lease renewal is opposed) has a cushioning effect and tends to produce a rent that is below the rent ultimately payable under the new tenancy. Under section 24C (when the landlord agrees the renewal), the general rule is that the interim rent will be the rent payable under the new tenancy: this provides an incentive for landlords to only oppose renewal with good reason.

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