Brooker & Anor v Unique Pub Properties Ltd

Rent under Part II of the Landlord and Tenant Act 1954 is an objective assessment of the open-market rent for the agreed tenancy. The court must assess what a willing hypothetical tenant would bid, having regard to the tenancy terms. The tenant’s actual affordability and financial difficulty do not justify fixing a lower rent.

For licensed premises, the profits-test methodology may be used, with comparable transactions providing an important cross-check where available. The hypothetical tenant’s likely trading performance, market conditions, capital costs, economic uncertainty and lease risks may affect the proportion of divisible profit bid as rent. Relevant factors must not be counted twice.

The claimants occupied The White Horse public house under Part II of the Landlord and Tenant Act 1954. The parties agreed all terms of the new tenancy except rent. The central issue was the proper method of assessing the rent for a tied or partially tied public house in a difficult trading market.

The court considered competing expert methodologies, the divisible balance, comparable transactions, declining beer sales, the partial tie, the smoking ban, economic conditions and the availability of capital. There was also a claim for an interim rent under sections 24A and 24C of the Act.

1. New rent. The rent was to be determined under section 34(1) of the Landlord and Tenant Act 1954 by an objective assessment of the rent at which the holding might reasonably be expected to be let in the open market. The relevant question was what an incoming tenant would offer for the agreed lease. The existing tenant’s ability to pay, or the risk that the business might fail without a reduction, was irrelevant: [15]-[21].
2. The appropriate starting methodology was a forecast of turnover, gross profit and expenses, producing a divisible balance from which the hypothetical tenant would bid an appropriate proportion as rent. The tenant’s historical accounts were of limited relevance because they would not be available to the hypothetical tenant. Comparable transactions remained an important cross-check where reliable and sufficiently comparable evidence existed: [22]-[27], [38]-[40], [59]-[67].
3. The court rejected the tenant expert’s proposed “prime principle” and “value equation”. The market did not support deducting the landlord’s wet rent from an orthodox free-of-tie rent. The court preferred the usual profits-test approach, while assessing the assumptions about free-of-tie sales and declining beer consumption in the circumstances of this public house: [24]-[27], [38]-[53].
4. In fixing the tenant’s bid, the hypothetical tenant would take account of economic uncertainty, the restricted availability and cost of capital, public house closures, the smoking ban, the partial tie and the availability of free houses, while also allowing for free accommodation. Those factors could not be precisely quantified, but materially reduced bidding confidence. They had to be kept separate from factors already reflected in the divisible balance to avoid double counting: [68]-[85].
5. The divisible balance was assessed at £51,500. In the unusual market conditions, a bid of 35 per cent produced a rent of £18,000 per annum. That rent was ordered to be inserted in the new lease. The interim-rent issue was not finally determined because the evidence and submissions on the 27 December 2007 valuation date were insufficient; written submissions and, if necessary, a further hearing were directed: [86]-[96].