Parties need to better protect themselves against lease renewal costs.
In a rare Court Judgment on an unopposed business tenancy renewal, the Court has dealt interestingly with costs, as well the duration of the new lease and rent Iceland applied for a new lease of their supermarket premises in Sandbach, Cheshire. They proposed it should be for 5 years at a rent of £37,500 per annum. Castlebrook, their landlord, proposed a 15 year lease at £182,350 per annum.
After hearing detailed expert evidence, and the Judge personally inspecting many of the comparables, the Court determined that the new lease should be for 10 years without a break at a commencing rental of £63,000 per annum.
Interestingly, despite the tendency for shorter leases, the Court considered it had to balance the interests of both parties and it held that a 10 year term was appropriate in all the circumstances, including the fact that the previous lease was for 35 years and Iceland had been in occupation for 20 years.
Insofar as the rent was concerned, both parties had made settlement offers that were wide of the mark. Iceland had offered a rent of £55,000 for a 5 year term but only £45,000 for a 10 year term. Castlebrook had proposed a rent of £87,900 per annum. Given the antiquated nature of the premises, and modern day requirements for supermarkets, the Court held there would be limited demand for the premises and a dual valuation rate should be adopted because the first floor space used for offices and storage was likely to be mothballed.
Iceland sought its costs on the basis it was the successful party, that Castlebrook had sought an inflated rent and its expert had not acted as an independent expert, and because Castlebrook had not agreed to refer the dispute to resolution under the RICS PACT scheme.
Where the Court determines a rent between the parties’ competing offers, it is usual for each party to pay its own costs. However, costs are in the general discretion of the Court and it can take account of the parties’ conduct.
Whilst the rent awarded was a third of what Castleebrook sought, it was still substantially above what Iceland had offered and, accordingly, the Court held that Castlebrook were entitled to have the rent determined by the Court.
Although Castlebrook’s expert could possibly be criticised for “overdoing it” on rent, the Court did not think this was worthy of any consequence as it had not added to the costs. The Judge did remark that both experts had in certain respects acted as hired guns rather than independent experts.
Accordingly, the major issue was whether Castlebrook should be punished for not taking adequate steps to settle. Under the Professional Arbitration on Court Terms scheme, the parties agree to an expert surveyor determining the terms in dispute and it saves on the costs of instructing Counsel and preparing for, and attending, a trial. The RICS has been keen to promote the Scheme and, given most County Court Judges have little property expertise, PACT can clearly lead to better results as well as cost savings.
Despite the changes brought about by the Jackson Reforms to civil litigation, and the very clear emphasis on avoiding litigation and pursuing alternative dispute resolution, the Court was not prepared to criticise or punish Castlebrook for refusing Iceland’s invitation to resolve the dispute under PACT. This was because Castlebrook had made a settlement offer to try to resolve the matter and there was no way of knowing how much cheaper PACT may have been or whether it would have been successful.
The Court therefore decided each party should pay their own considerable costs and the lesson to learn is to make more generous offers if you want to ensure costs protection.