Member Article

Landlords and tenants have a love/hate relationship with the principle laid down in O'May v City of London Real Property Co Ltd. On renewal under the Landlord and Tenant Act 1954 the terms of the new lease will generally follow the terms of the existing one and the onus is on the party proposing a change to show that it is fair and reasonable.

Until recently, there was a dearth of case law to guide us about what would be considered 'fair and reasonable', but the recent case of Edwards & Walkden (Norfolk) Limited v The Mayor and Commonalty and Citizens of London provides some very useful assistance.

The case involved 51 claims for new tenancies under the Landlord and Tenant Act 1954 brought by the meat trader tenants of Smithfield Market.

Two issues were before the court:

• whether the tenants' rents should be reduced to take account of other income received by the landlord from the offices above the market – this was particular to the facts of the case
• whether the rent should be an all-inclusive figure for rent and service charge, or whether a variable service charge should be payable in addition to rent

The existing leases contained a service charge schedule under which the landlord covenanted to provide services, and the tenants agreed to pay a service charge (separate from the rent payable under the lease) to meet the costs of those services.

However, the main body of the leases provided that the tenants did not have to pay this service charge, and only had to pay the main rent as an all-inclusive sum.

Most unusually, because of a previous long-running dispute, the existing leases also provided that, in the event of a 1954 Act renewal, the parties should renegotiate the all-inclusive rent. Both parties accepted that the landlord should be able to recover its service costs in full.

On renewal, the tenants argued that it was fair and reasonable that the rent should be an all-inclusive figure because that reflected the terms of the existing leases and it would afford them certainty as to future costs.

The landlord argued that the leases should provide for a rent and a separate variable service charge, as provided for in most of the original tenancies, and that this was still justified given the services it provided.
The court looked at the commercial arrangements between the parties and found that previous negotiations of these leases, and the long-running dispute, had diminished the weight to be attached to the O'May principle in relation to this particular issue. Also, despite a contrary inference in O'May, the court used current market practice as a reason to find in favour of the landlord.

In light of this case, both landlords and tenants should be wary of relying too heavily on O'May, when additional commercial arrangements and even current market practice may be used by the courts when ruling on what terms should be included in a new lease on renewal.