Lay & Ors v Drexler & Ors (t/a Littlestone Martin Glenton)

Where a landlord validly starts proceedings for a new business tenancy and the tenant acknowledges that it seeks a tenancy on different terms, the tenant’s later unilateral notice that it no longer wants a tenancy is analogous to discontinuance. The ordinary costs consequence is that the tenant pays the landlord’s costs, unless a special reason justifies departure.

A compromise of an interim-rent issue does not convert separate renewal proceedings into a compromise of the whole dispute. Costs attributable to each issue must be considered separately.

The trustees of the Portman Estate applied under section 24(1) of the Landlord and Tenant Act 1954 for a new tenancy of business premises occupied by accountants trading as Littlestone Martin Glenton. The tenants acknowledged that they did not oppose renewal but disputed the proposed terms. They later decided that they no longer wanted a new tenancy, and the application was dismissed under section 29(5).

The parties had agreed the interim rent, leaving costs as the principal outstanding issue. The County Court made no order as to costs, treating the matter as a compromise governed by BTC Software. The landlords appealed. The central questions were whether the renewal proceedings had been prematurely issued, whether the tenants’ notice amounted to unilateral termination analogous to discontinuance, and what costs order followed.

1. Appeal allowed. The County Court’s order was set aside. The tenants were ordered to pay the landlords’ costs of the County Court proceedings, to be assessed on the standard basis if not agreed, excluding any measurable costs attributable solely to agreeing the interim rent.
2. The landlords’ proceedings were not premature. The tenants had failed to respond substantively to the proposed lease and to the landlords’ warning that proceedings would be issued. The landlords’ new right under section 24(1) of the Landlord and Tenant Act 1954, introduced by the 2003 Regulations, was intended to bring negotiations to a head and protect landlords from delay.
3. By acknowledging that they sought a new tenancy, subject to terms being settled by the court, the tenants had effectively joined in proceedings for a new tenancy on their own proposed terms. Section 29(5) required dismissal when the tenants later informed the court that they no longer wanted a tenancy. That decision was unilateral and was not a compromise.
4. The agreed interim rent was a distinct matter. Under sections 24A, 24C, 24D and 64 of the 1954 Act, the interim-rent claim could be treated separately. The guidance in BTC Software could apply to costs relating to that compromised issue, but not to the renewal application.
5. The tenants’ notice was analogous to discontinuance. Under CPR 38.6(1), as explained in Ian Walker v John Graham Walker, the ordinary costs consequence places the relevant costs on the party responsible for discontinuance. The burden lay on the tenants to establish a good reason for a different order, and they failed to do so.

• Court of Appeal (Civil Division): allowed the appeal under [2007] EWCA Civ 464, set aside the costs order, and ordered the tenants to pay the landlords’ County Court costs, subject to exclusion of costs solely relating to the agreed interim rent.
• Central London County Court: on 17 May 2006, the renewal application was dismissed under section 29(5) of the Landlord and Tenant Act 1954. On 22 June 2006, His Honour Judge McMullen QC made no order as to costs.