Under the Landlord and Tenant Act 1954 (the ‘Act’), even after a business lease has reached its expiry date the landlord will have to grant a new lease to the tenant. Whilst the new lease is being arranged, the tenant will continue to pay the rent (the ‘interim rent’) as per the old lease, unless an application is made to the Court to determine the interim rent.
An application to determine the interim rent can be only be made where the tenancy continues by virtue of section 24 of the Act and the application can be made up to six months after the termination of the tenancy. The application can be made in either the county court or the High Court.
Either party can apply. However, the majority of applications are made by landlords who intend to avoid the unfairness of being paid a rent that is below the current market rate – this is usually the case in a healthy rental market where rents are on the increase. However, due to the current economic climate, more properties are available and rents have decreased, so tenants are more likely to apply for an interim rent which is likely to be at a reduced rate.
Once an interim rent has been determined by the court, it tends to be the rent agreed in the new lease. The court will also have regard to the following rules:
- whether the tenant or his predecessors in title having been in occupation of the property has any effect on the rent
- whether there is any goodwill attached to the holding
- whether any improvements to the property have affected the rent
- in the case of a holding comprising licensed premises, any addition to its value attributable to the licence.
In the case that the landlord opposes the new tenancy or if the terms of the lease are substantially different from the old one or rental values have significantly changed, the interim rent will be set as the market rent having regard to the rent under the old lease.
The interim rent procedure is very technical and somewhat complex. Many landlords rely instead on a rent review clause in their lease which provides that a rent review of upwards only increase is carried out just before the end of the lease term. This way, a rent review is agreed (by contract) and when the lease ends, the more favourable rent must be paid by the tenant until the new lease is finalised.