When a lease of commercial property in England and Wales protected by the Landlord and Tenant Act 1954 ("1954 Act") comes to an end, the tenant is automatically entitled to a new tenancy unless the landlord can satisfy a terminating ground under the 1954 Act. In the intervening period from lease-end to new lease, interim rent accrues. In a market where rents have reduced, for example, in high street retail or office space, landlords in particular, should consider how that fall in rental values will impact a tenant's claim for interim rent.
1. Know what it is and why it's important
Interim rent is the rent payable between the expiration of the contractual term of the old lease and the date the new lease is entered.
Following initiation of a lease renewal process under the 1954 Act by service of either a 'section 25 notice' by a landlord offering the tenant a new tenancy or a 'section 26 request' by a tenant requesting a new tenancy, either party may make an application to the court for determination of whether interim rent is payable and, if so, at what level.
2. Know when it starts to run
This will be the earliest date on which the current tenancy could terminate (section 25) or a new tenancy could come into existence (section 26).
Parties must give 6> and <12 months' notice to end their tenancy. Therefore, the earliest date will not necessarily be the termination date given in the notice or request where more than 6 months' notice is being given.
3. Calculate the value early
Subject to market conditions not substantially altering and the terms of any new lease not materially changing, a standard unopposed lease renewal of the whole of the property, interim rent will be the rent in the new lease. If the passing rent under the old lease is different than that in a new lease, there will be an interim rent liability to be settled.
Where lease renewal negotiations are slow to develop, the result could be a substantial claim for interim rent.
4. Ways to settle a claim
Where interim rent is less than the passing rent under the old lease and there is therefore a reimbursement due to the tenant, this may be dealt with by a rent-free period in any new lease or a lump sum payment or combination of the two.
Assess whether there is any disrepair in the property the tenant must compensate the landlord for or works to be performed that may be used in mitigation or set-off of an interim rent claim.
5. Complete any new lease without delay
In a market with reduced rents in new leases, completing a new lease sooner rather than later is better.
If negotiations for the new lease stall, consider issuing lease renewal proceedings to forcibly progress negotiations and ultimately crystallise the interim rent claim. A party has 6 months from the end of the current tenancy (however so determined – ending court proceedings, completing the new lease, etc.) to bring an interim rent claim, otherwise the right will be lost.
If you are a commercial landlord or tenant seeking to renew tenancies, or you have any concerns in relation to interim rent or the lease renewal process generally, please do not hesitate to contact the Real Estate Disputes team or your usual Brodies' contact.
