The County Court has handed down a decision on 29 June 2021 in the case of Poundland Limited v Toplain Limited (“Poundland v Toplain”) in which it was asked to consider whether the inclusion of a ‘pandemic clause’ in a 1954 Act renewal lease amounted to reasonable modernisation.
‘Pandemic clauses’ operate to reduce the rent payable during a period of government closure (i.e. a lockdown period) or to remove the obligation to pay rent altogether where such an event occurs. The pandemic clauses can also see the tenant’s other obligations pursuant to the lease, such as its repair obligations and keep open requirements, suspended during a lockdown period. Since the first government lockdown in March 2020, landlords and tenants negotiating renewal leases have been arguing about whether the inclusion of a pandemic clause amounts to reasonable modernisation of an existing lease. There has until now been no case law which directly addresses this issue, leaving it largely up to the landlords and tenants to negotiate the position.
The fact of the case
The parties in the case had largely agreed the terms of the new lease, including the annual rent, the term and the interim rent. They had not, however, agreed on other terms including the timing of rent payments, the inclusion of the pandemic clauses and other miscellaneous provisions. The Court was asked to determine the terms of the new tenancy which were not agreed between the parties, pursuant to the power afforded to it by section 35 of the Landlord and Tenant Act 1954 (“the Act”). In exercising its discretion, the Court also had regard to the leading case of O’May v City of London Real Property Co Ltd (1983).
Poundland (the tenant) argued that it was in both parties’ interests for the tenant to be able to continue trading so that it could meet its ongoing obligations under the lease. The effect of the clauses proposed by Poundland would have meant that only 50% of the rent and service charge would be payable during a lockdown period; would have suspended compliance with insurance obligations; and would have prevented the landlord from forfeiting the lease during a lockdown period.
District Judge Jenkins, hearing the case, was not prepared to incorporate the pandemic clauses into the renewal lease. DJ Jenkins held that Poundland were seeking to impose a new risk on the landlord, by sharing “what must otherwise be the tenant’s risk to pay rent”. DJ Jenkins pointed to the fact that Poundland may have had available to it grants and other reliefs from the Government, which the landlord may not have access to. The inclusion of such provisions would not be fair and reasonable, given that the purpose of the Act is not to redesign previously negotiated risks, even though a national lockdown may not have been in the parties’ minds when the lease was originally negotiated.
Poundland also tried to make further amendments to some of the existing lease terms to bring specific clauses in line with its property portfolio (such as paying the rent in arrears rather than upfront, the latter being the position under the existing lease). DJ Jenkins did not consider that the tenant’s portfolio and individual requirements was a relevant circumstance when considering whether the proposed amendment was a reasonable modernisation, and did not consider this to be a proper exercise of discretion as suggested by O’May.
Although it is only a County Court decision, Poundland v Toplain gives us some indication of the stance that the Court is likely to take when asked to consider whether the inclusion of pandemic clauses amount to reasonable modernisation of an existing lease. The decision will no doubt be welcomed by landlords across England and Wales.
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