BMW (UK) Ltd v K Group Holdings Ltd: Clyde & Co
The recent judgment was handed down in the lease renewal case BMW (UK) Ltd v K Group Holdings Ltd. This case addressed some topical issues in relation to the Landlord and Tenant Act 1954 (“the 1954 Act”).
BMW, the tenant, has leased four units at 70 Park Lane, London. BMW occupied parts of the ground floor and basement of the building. There was no opposition to granting new leases, but the two parties did not agree on the condition for the landlord’s termination of the lease and the amount of the renewal rent.
A procedural issue also arose in the proceedings regarding the admissibility of late witness statements, as the judge refused the tenant permission to rely on three witness statements.
This case helps to demonstrate how the courts are likely to deal with a landlord’s application for break conditions and rent assessment, and also serves as a cautionary tale as to the consequences of failing to comply with court orders during 1954 Act proceedings.
Owner’s rest condition
In the proceedings, the landlord sought the right to determine the central showroom lease on six months’ notice at any time between the second and fifth anniversary of the term. The reason for this was that the owner wanted to use that specific unit for the purposes of running his own business in the future.
It is accepted that if a break clause is included and enforced, the landlord will have to prove a reason for opposition under section 30(1) of the Act – that on termination of the tenancy the landlord intends to occupy the property for the duration of the business purpose. If this reason is proven, the tenant is entitled to legal compensation upon his eviction after the expiration of the renewed lease contract.
The judge had to consider whether the available evidence met the test that the owner’s intention to conduct his own business from the premises was a “real possibility”. He acknowledged that there is a difference between an owner’s intention that is relatively ill-considered but real and, on the other hand, an intention that is real but speculative. Ultimately, on the facts of this case, the judge held that the test was not met and that the landlord’s break clause would not be included in the lease renewal.
The parties were far apart on the head rent for the four units, with the tenant’s expert suggesting a rent of between £76 and £100 per square foot, while the landlord’s expert suggested a rent of £228 per square foot.
The judge summarized the principles to be applied under section 34 of the 1954 Act when deciding the amount of a lease renewal. These included:
- The valuation date is the start date of the new tenancy (3 months after the final decision of the proceedings).
- The principle of “fact” applies – meaning that the property is valued as it actually was on the valuation date.
- In an open market appraisal, a willing buyer is a hypothetical person, however it reflects reality, which is what the market conditions are for that property at that specific time.
- When a real tenant actually occupies a building other than the property being appraised, that tenant’s occupation should be taken into account (for example, they may pay more than any other potential tenant). Likewise, if the property has a particular value to the occupant of a neighboring building, such that he would pay more than another potential tenant, this should also be taken into account.
- The statutory disregard under section 34 must apply to that specific unit in question, and not to any other units.
The judge also looked at comparisons to other auto shows in the area. On this point, expert valuers on each side reached different conclusions about (1) the relative desirability of Park Lane and Berkeley Square and (2) what conclusions could be drawn from the comparable evidence. The tenant’s expert’s view was that Park Lane was not as prestigious as Berkeley Square, and attracted a lower rent, while the landlord’s expert was of the view that Park Lane was as good if not better and should attract a rent broadly equivalent to the rent paid by Lotus at Berkeley Street/Piccadilly ( This is the latest car show deal in Mayfair.
The judge spent some time looking at other car showrooms in the area, such as the Lotus and Rolls-Royce showrooms and the anticipated Aston Martin Berkeley Square showroom. In this regard, the judge concluded that neither the rent paid by Lotus nor the expected rent to be paid by Aston Martin (about £228 per square foot) represented a true comparison for the building. This was due to the fact that the Berkeley Group area was becoming more popular among high-end manufacturers and that new entrants were willing to pay well in excess of the historical market price for this area.
On the other hand, when considering the Park Lane comparisons, the judge held that the Park Lane area does not require the same level of rent that Lotus pays in the Berkeley cluster area. The judge looked at Bentley, Ferrari and Rolls-Royce showrooms in the area, where rents ranged between £112 and £129 per square foot, as well as the fact that No. 70 Park Lane premises were “genuine flagship premises”.
In addition, the landlord’s expert raised the point that the tenant was a private buyer and would likely pay a higher rent than another potential tenant for one of the four units if it were vacant. But the judge disagreed with that point and noted that the type of assessment they were dealing with was a matter of negotiation between a willing landlord and a willing tenant, with the landlord wanting the highest possible rent and the tenant wanting the lowest possible rent. rent. The judge noted that in this scenario, it is a matter of negotiating a price between reasonable people in relation to a unit that is vacant and available for rent. Ultimately, an agreement will be reached between the two parties after negotiations, and the agreed rent will depend on the strength of the arguments of both parties.
Ultimately, after considering the facts and comparisons, the judge decided that a head rent of £126 per square foot was appropriate in the circumstances.
The tenant was refused permission to rely on three witness statements during the proceedings.
A witness statement (from the tenant’s former head of corporate real estate) was provided late in violation of a court order. The judge refused to reduce the penalties, stating that no good reason had been given for breaching the previous court order, and that the breach was serious and significant.
The other two witnesses’ statements were from individuals regarding the marketing of the building located on either side of 70 Park Lane. The tenant wanted to rely on this evidence under the Civil Evidence Act 1995 without calling witnesses to attend the hearing. However, this was again in breach of a previous court order made during pre-trial review, which had stated that makers of witness statements on which the parties intended to rely must attend the cross-examination hearing unless their presence was evident. It is dispensed with by agreement. The judge held that this previous order was clear, and unless there was agreement between the parties that the witness was not required to be present, no evidence could be admitted.
Landlords and tenants should take note of this; It only goes to show that if proceedings are brought in relation to the renewal of a lease, it would be prudent not to assume that any ongoing negotiations without prejudice will result in a completed lease and to dispose of the proceedings before any hearing is reached. In making this assumption, parties run the risk of failing to comply with court orders or directions in a timely and effective manner, which could potentially have serious consequences if the matter goes to a hearing.