What is the "rent" under a lease?

In the recent case of 3639 Limited v Renfrewshire Council, the landlord and tenant couldn't agree on what qualified as rent under the lease.

The Dispute

Renfrewshire Council was the head landlord and 3639 Limited was the head tenant of a shopping centre.

The head lease provided that the rent payable by the head tenant to the head landlord was the higher of £7210 or 16% of the Rack Rental Income.

One of the sub-tenants renounced its sublease to 3639, paying a surrender premium of £4.2M to do so. An element of the surrender premium related to future rent. Other elements of the premium related to service charges, rates dilapidations and insurance premia.

The Council claimed that it was entitled under the head lease to 16% of the rent element of the premium. Its view was that the head lease was a development lease that was in part an economic partnership. Looked at in that light, rent must include any payment in lieu of rent

3639 unsurprisingly did not agree. Its position was that the rent element of the premium was not rent because it was not payment for future occupation; the premium was a payment for non-occupation.

Decision

The Court agreed with the Council. The definition of rent had to be read in the light of the common intention of the parties under the head lease to share in the highs and lows of the development of the shopping centre. It would not have been the parties' intention to allow 3639 to frustrate the head landlord's income by agreeing one off payments with sub-tenants rather than periodic payments.

What can be taken from this decision?

The courts will not be quick to deprive a landlord of a rental income, particularly if the lease is a development lease.