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Lawbite: lease renewal incentives revisited

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate dispute resolution
  • Consumer


Britel Fund Trustees Limited v B&Q PLC (2016) (unreported)

The landlord, Britel, and tenant, B&Q, had agreed on all terms other than rent and interim rent in unopposed lease renewal proceedings.  The hearing focused largely on expert valuation evidence on these points.

The County Court had to assess the effect on rent of (a) a mutual rolling break exercisable anytime from June 2018; and (b) a 3 months’ rent free fitting-out period, when carrying out the statutory exercise imposed on it by s.34 of the Landlord and Tenant Act 1954.

Britel required a break as they intended to redevelop and it was likely that they would operate it fairly early on.  This, and the size and location of the premises, significantly narrowed the pool of prospective tenants for the premises. 

The experts originally agreed that another large DIY retailer was the likely tenant and prepared evidence accordingly; anticipating that the main issue would be what discount should be applied to the rent to take into account the break. 

At the hearing, the experts conceded however that in reality no DIY retailer would accept a lease with such a break clause, leaving the only potential tenant a discounter willing to trade for a short term with a short fitting-out period.  No comparables could be produced at that late stage (if they even existed) and the Court relied on rental figures proposed by the experts based on their experience.  A headline figure was reached by taking a mid-point between the experts’ positions.  A discount was then applied to take account of the break option.  The significant compensation sum payable to B&Q, if Britel exercised the break option, was highly relevant in calculating the discount rate.  

After consideration of conflicting County Court decisions, the Court decided that, where a rent free period would be required in the open market, rent should be discounted by applying the rent free period to the whole of the term. 

Key points

  • All inducements should be netted back when considering the appropriate rent for a lease renewal to reflect the fact that the incoming tenant is paying rent from day one with no market or fitting out incentives for taking the lease.

  • The position is not the same as usual rent review clauses which direct the valuer to arrive at the reviewed rent after the expiry of any rent free period or other inducement for fitting out but before any pure inducement.