Rent Free or No Rent Free – That is the Question!

A flurry of recent property litigation cases will interest landlords and tenants negotiating rents on renewals under the Landlord and Tenant Act 1954 (“LTA 1954”).

The Law

Under s.34 of the LTA 1954, the parties can ask the Courts to determine the rent to be paid under a renewal lease. The Courts look at comparable evidence when deciding on rent but must disregard any impact of the tenant already occupying the premises.
The problem with this approach is that the evidence reviewed by the courts will show the headline rents under comparable leases – but will not take into account any rent-free periods which applied to those leases for fit-out works.

A tenant under a renewal lease will be already in occupation, and therefore the full level of rent determined by the Court will be payable from the commencement of the new lease. Recent case law has debated whether that headline rent should be reduced to consider the fact that these comparable rents were subject to a rent-free period.

It is clear that there is much debate in the judicial system as to whether (and how) rent free periods should be taken into account in lease renewals.

As such, until the point is determined by the Court of Appeal, negotiations between landlords and tenants regarding the appropriate level of rent will remain contentious.