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S Franses Ltd v The Cavendish Hotel (London) Ltd

Published: Friday 18 June 2021

HHJ Parfitt handed down judgment today in “round two” of this well-known case under the Landlord and Tenant Act 1954. S Franses Ltd having established its right to new tenancies of premises on Jermyn Street in the Supreme Court, this was the trial to determine the terms and rent of the new tenancies and the amount of interim rent – the latter payable over a particularly long period because of the time the litigation has taken.

The parties had substantially agreed the terms of the new leases and further agreements were reached during the trial, so that only four disputed terms remained. These were resolved substantially in the tenant’s favour.

The rent for the new tenancies was a major battleground and made more difficult by upheaval in the property market due to the Covid-19 pandemic and the absence of comparables. By the time of trial, both valuers had reduced their rental valuations from their original expert reports, in light of the large number of vacancies on Jermyn Street and the limited transactional evidence there was. The Judge found that good points had been made in cross-examination of both valuation experts but his ultimate rental value (£102,000 p.a.) was substantially closer to the valuation of the tenant’s expert witness (£96,500 p.a.) than the landlord’s (£174,750 p.a.). This valuation was approached using the traditional zoning methodology rather than assuming any particular percentage reduction in rental valuations attributable to Covid.

On any basis, the new rent is a very large drop from the previous passing rent of £220,000 p.a. This had been set on a rent review in 2011 on an artificial hypothesis which required the user and alienation covenants in the leases to be ignored.

The valuation date for the interim rent was as long ago as January 2016. Here, a major problem for the Landlord was that its valuation expert witness had not properly valued a year-to-year tenancy, as required by the Act as the starting point for the interim rent decision. Because the Tenant had in fact had more than 5 years’ of occupation, he had approached the valuation as if it were of a 5-year term, ignoring the fact that the Act intends the interim rent figure to reflect the uncertainty to a tenant of not knowing whether or when its tenancy will be reviewed. The Judge accepted the Tenant’s expert’s valuation of £140,650 p.a. but held that needed to be adjusted to take into account various factors, including the difference between that figure and the passing rent of £220,000 p.a. He determined an interim rent of £160,000 p.a.

Whilst this decision – unlike the Supreme Court in “round one” – does not make new law, it will be of interest to the market, which is keen to understand how the courts are likely to approach the valuation challenges that the pandemic (and resulting steep decline in West End rental values) has brought.

Joanne Wicks QC, instructed by David Cooper & Co, acted for S Franses Ltd.

The judgment can be downloaded here.