Most landlords are reasonably familiar with the rules set out in O’May v City of London Real Property Co Limited. As a result of that case, a landlord cannot introduce changes to lease terms on a renewal where the effect of the change is to shift a specified risk from landlords to tenants. In the O’May case, the lease had an inclusive rent, so the landlord was not able to force a renewal lease upon the tenant in which the rent became exclusive of service charge because this shifted the risk of fluctuating costs for the services from the landlord to the tenant.
Whenever a landlord seeks to change lease terms on a renewal, the burden is on the landlord to show that the proposed change is fair and reasonable in the circumstances.
In the recent case of Edwards & Walkden (Norfolk) Limited v City of London Corporation, we saw good illustration of the fact that general rules of thumb that we derive from case law are all dependant on the application of the facts of the case which is how case law evolves. In the Edwards & Walkden case, the lease renewals involved tenants at Smithfield Meat Market. On a number of the renewals, the landlord wanted to move from inclusive rents to exclusive rents plus a service charge and the tenants objected. The court held that the landlord, in this very particular case, was entitled to alter the terms of the renewal leases from inclusive to exclusive rents but what is very relevant are the facts of the case. Most of the leases were originally granted back in the 1980s and had exclusive rents. However, concessions were later given to compensate tenants for disruption due to major refurbishment works and that concession was then repeated in the renewal leases granted in the early 2000s albeit that the landlords position in those renewal leases was reserved for the future.
It appears that the Court were also influenced by the nature of the services provided in these Smithfield Meat Market leases. Most related to the trading requirements of the tenants covering things like health and safety, hygiene and refrigeration services. The cost of providing these services was causing the landlord a substantial loss each year and so on this very specific case, the landlord was able to change the terms of the renewal lease closer to the original 1980s leases.
None of us should get carried away thinking that there is any new law that was made by this case but we should all remember that cases do turn on their own specific facts and that even what appears to be a simple renewal case can turn out to be complicated.