Iceland Foods Ltd v Castlebrook Holdings Ltd

 

Summary

Iceland occupied supermarket premises in Sandbach, Cheshire under a 1954 Act tenancy. They had been in occupation since 1993 and the Lease had originally been entered into in 1970. The premises had been purpose built by Tesco and was rectangular with ground and first floor levels, a servicing area and a car park. The ground floor comprising 5,484 sq ft GIA was used as the retail portion, and the 1st floor, comprising 5,600 sq ft GIA, as ancillary accommodation.

Iceland sought a renewal tenancy for a term of 5 years at an annual rental of £37,500 (which was the passing rent) whilst the landlord sought a term of 15 years at a rental of £182,350.00, its expert relying principally upon a Waitrose Store in Knutsford which had been let at £16.43 psf as its comparable.

Both parties made settlement offers before trial. The tenant offered £55,000 per annum for a 5 year term and £45,000 per annum for a 10 year term. The landlord offered £87,900 per annum for a term of 5 years.

The trial took place in Liverpool Civil and Family Court. It lasted 5 days.

The Judge (Mr. Recorder Clayton) determined a renewal term of 10 years, at a renewal rental of £63,000 per annum, subject to review after 5 years.

Features to be derived from the Judgment:

  1. The Judge found it helpful to have the experts “hot-tubbed” which was done by reference to a Joint Schedule in which the experts identified 14 points of agreement/disagreement and ranked comparables, in order of preference. Each expert summarized his evidence; then addressed each of the points of disagreement in the Joint Schedule; and then they were cross-examined generally on any outstanding issues.
  2. The Judge simply looked at comparable letting transactions. He did not consider it helpful to consider rental evidence set by arbitration awards or by other courts in 1954 Act renewal proceedings (see Land Securities v Westminster City Council [1993] 1 WLR 286).
  3. He emphasized the need for experts to be truly independent and not “hired guns”. He said his task had not been made easy by the experts as, at times, they had lost sight of their overriding duty to the Court.
  4. He fixed a term longer than that sought by the tenant, Iceland. Iceland had emphasized the need for flexibility, and that a term of 5 years would give it a term of sufficient length and certainty to allow it to incur significant capital expense, but would allow it to have the flexibility required by volatile market conditions. The landlord’s expert suggested that today’s standard lease is for 15 years (a position not accepted by Iceland).The determination of the length of the new term as being more than that sought by the tenant is unusual because the tendency has been for the courts to accept the length of term sought by the tenant: see Reynolds v Clark, Renewal of Business Tenancies 3d Ed., para 8-19 to 8-36.

    The Judge took account of the fact that the Lease dated back to 1970 and that Iceland had been in occupation for 20 years and that the premises are dated with a limited life and market. He noted that the landlord had no compelling reason for a longer term other than its greater investment value.

    He decided on a 10 year fixed term with no break as this struck a reasonable balance between the parties’ competing interests. It gives reasonable security of investment to the landlord and reasonable security of tenure to the tenant. He stated that 10 years was midway between the parties’ positions and it was therefore a sensible and pragmatic compromise.

  5. The Judge, in determining the rent, carried out a careful analysis of the particular market for the premises. He held the market was limited and noted that the nature of supermarket premises had changed substantially (particularly as to the need for storage space and with the advent of the smaller convenience type stores that are excepted from Sunday trading limitations). He accepted that an overall dual rate should be adopted (i.e. a Zone A rate for the Ground Floor, with an adjusted rate for the 1st Floor as opposed to the single unit rate sought by the landlord); he accepted that Knutsford was not sufficient demographically similar to Sandbach to be comparable (Knutsford being a far more affluent town with a buoyant and thriving High Street); and he stressed that it was important to rely on comparables which were not too historic.

The lesson here is perhaps obvious: to rely on relatively fresh market comparables derived from a demographically similar area, and paying particular regard to the market for the premises.

The Judge visited the main comparables and deals with the comparable evidence in some detail in his Judgment.

He concluded that the market rent should be based on £10 psf for the Ground Floor and £2 psf for the First Floor and, interestingly, discounted the rent to allow for a 3 months fitting out period given the age of the premises. The interim rent was agreed to be the same as the new Lease rent.

Neither party sought permission to appeal.

As to costs, although Iceland sought theirs on the basis the landlord had sought a rent 3 times the decided figure, the Judge made no order as neither party had made a successful offer nad he did not feel it appropriate to penalize the landlord for not agreeing to settle the issues through the PACT Scheme (I.e. by Professional Arbitration on Court Terms). He felt both parties had tried to settle and had not behaved unreasonably.

Tim Harry
Maitland Chambers