Renewal of Commercial Leases - It Can All Come Down to Judicial Discretion

A commercial landlord may, for any number of reasons, be keen to see the back of a tenant. However, as one case showed, the question of whether a business tenancy should be renewed can in the end come down to an exercise of judicial discretion.

A company's tenancies of two sets of retail premises were protected under Part II of the Landlord and Tenant Act 1954. When the company sought new leases under Section 26 of the Act, the landlord issued counter-notices objecting to renewal. Following a hearing, however, a judge directed the landlord to grant the company fresh tenancies on terms to be decided by the court, if not agreed.

The judge found that, owing to the company's breach of its repairing obligations under the leases, the premises were in a substantial state of disrepair when the counter-notices were served. He also found that the company had persistently delayed in paying rent. He nevertheless went on to exercise his discretion in the company's favour.

He noted that the couple who were the guiding minds behind the company derived their livelihoods from the business, which served the local community. They had inherited the premises in poor condition and, albeit belatedly, they had personally borrowed a substantial sum and spent it on repairing them. He was confident that they would not permit the company to breach its leasehold obligations again.

In rejecting the landlord's challenge to that outcome, the High Court noted that the judge had criticised aspects of the couple's behaviour as unsatisfactory or wrong. He did not, however, find that they had been dishonest, nor was he obliged to do so on the evidence. In a careful and detailed ruling, the judge was entitled to exercise his discretion in the way he did. The landlord's challenge to an order requiring it to pay 75 per cent of the company's legal costs was also dismissed.