ASDA Stores Ltd v Salya Investments Ltd

Under a commercial lease providing for five-yearly and intermediate rent reviews, the reference to buildings may include an extension to an existing building. The court should construe both review regimes consistently and in their commercial context. Where rent is calculated as a percentage of the rental value of land and buildings, the fact that the tenant funded the works does not by itself justify disregarding the resulting building or extension as a tenant’s improvement. A structure may constitute a building despite gaps between its roof and enclosing walls, where the overall construction produces a covered and substantially enclosed area.

The claimant tenant operated a superstore under a 125-year lease. The lease provided for five-yearly rent reviews and intermediate reviews where additional buildings were constructed. The tenant carried out works including an extension to the store and the erection of a substantial canopy over an existing service yard. The parties sought determination of whether those works were to be taken into account in calculating rent, both at ordinary reviews and at an intermediate review.

1. The court construed the five-yearly and intermediate review provisions together. The language used in one regime informed the interpretation of the other. The commercial purpose was to provide a rent for the landlord’s land, measured by reference to the value of the land and buildings.
2. For five-yearly reviews, the value of the land and buildings was to be taken into account whether the buildings had been erected by the landlord or the tenant. There was no principled distinction between a free-standing building and an extension to the original building.
3. The intermediate review provision, referring to “any buildings” additional to the original building, included an extension to an existing building. The words were not sufficiently clear to impose a limitation to free-standing buildings. The extension to the corner of the store therefore fell within both rent review regimes.
4. The canopy over the service yard, considered together with the existing walls and gate, produced a covered service area which was a building. It was therefore to be taken into account for the five-yearly review, including the canopy itself, and for the intermediate review.
5. The same reasoning meant that the 1988 extensions formed part of the land and buildings valued on subsequent five-yearly reviews. No separate intermediate review arose for those works because the 1988 licence had dealt with that matter.

The claimant was entitled to no declaration that the works were to be disregarded. A declaration was to be agreed in the defendant’s favour. The defendant received its costs, summarily assessed, and permission to appeal was refused.