While many practitioners are familiar with the general workings of lease renewals under the ’54 Act, there is one aspect of the law that is often overlooked: interim rent under sections 24A to D. Andy Creer takes a look at the law.
Interim rent is the rent payable for the period from “the appropriate date” (as defined by s.24B and being the earliest date that could have been given in the s.25 or s.26 notice) to the commencement of the new tenancy. In many cases the interim rent will be the rent under the new tenancy (if granted), but there are important exceptions.
Firstly, where the landlord does not oppose the grant of a new tenancy, the rent under the new tenancy will also be the interim rent (s.24C(1) of the Act) unless either: -
i. it “differs substantially” from the rent during the continuation tenancy. For an example of this see MacWilliam v Clough  PLSCS 58 where the only reliable valuation evidence was that the market rent at the date of hearing (September 2013) was approximately 40% lower than the date from which the interim rent started (April 2008). The judge therefore ordered the higher figure should apply and the interim rent was £37,566 compared with £22,232 under the new tenancy; or,
ii. the terms of the new tenancy result in a “substantially different” rent compared with the old tenancy. This might be the case where the service charge or repairing covenants impose a different obligation or where the new tenancy is of the whole of the holding and additional land.
Secondly, pursuant to s.24D if the landlord unsuccessfully opposes the grant of a new tenancy, the interim rent is determined on a different basis: that is, what is the reasonable rent for the tenant to pay for a yearly tenancy of the premises assessed on s.34 principles (open market letting to a willing tenant, disregarding previous occupation, goodwill, tenant’s improvements etc.)
As Megarry J in English Exporters (London) Ltd v Eldonwall Ltd  Ch 415 noted, the inclusion of the qualification “for the tenant to pay” means the interim rent under s.24D is not the same as “the reasonable rent” without more. The intention of Parliament had been to cushion the impact on the tenant of the new open market rent which is being retrospectively imposed.
In Humber Oil Terminals Trustee Ltd v Associated British Ports  EWHC 1336 (Ch), it was held that the provisions of s.24D had been intended to create an approach broadly equivalent to that used in setting the amount of a quantum meruit and other common law remedies, where reasonable payment is to be made for some benefit conferred. As such, while the Court shall have regard to the passing rent, this is merely a factor in the determination of a reasonable rent.
In Charles Follett Limited v Cabtell Investments Ltd  2 EGLR 88 at first instance the judge assessed the s.34 yearly rent to be £80,000. In having regard to the old rent (of £13,500) he determined the interim rent to be £40,000. The Court of Appeal held it was not wrong in principle to make a 50% reduction, though it would be an exceptional case.
Neale v Whitney Electric Theatre  EWCA Civ 1032 provides an example of where the hypothetical rent of an annual tenancy was lower than the old rent, albeit the judge determined the interim rent to be the passing rent (and again this was held to be within the reasonable range of decisions on appeal). Neale also highlighted the difficulty in finding comparables for certain types of property and the artificiality of a calculation based on letting commercial premises on a yearly tenancy.
Depending upon market conditions, the interim rent being assessed under s.24D on the basis of a yearly tenancy can be much lower than the open market rent (which would be for a longer term and with security of tenure). As such, the likely level of interim rent under s.24D might have a significant bearing on whether to oppose the new grant if the landlord’s prospects on establishing any of the s.30(1) grounds are weak.
It would be unusual for a tenant to bring an application for interim rent without expert advice that it would be lower than the current rent.
Be aware that where the new rent is agreed or determined at a lower rate than that under the old tenancy, a tenant can make a retrospective application for interim rent and obtain a rebate. The effect of s.24A(3) and s.64 of the Act mean that, where a landlord successfully opposes a new tenancy, the Part 8 claim for an interim rent could be up to 9 months later (plus any further period if there is an appeal).
A tenant cannot bring an application for a new tenancy then seek to assert that they do not have a tenancy under the Act to try to defeat the landlord’s claim for interim rent: Benedictus v Jalaram  1 EGLR 251.
The landlord’s claim for interim rent is separate to, and therefore, survives an application for a new tenancy if withdrawn: Michael Kramer & Co v Airways Pension Fund Trustees Ltd  1 EGLR 49. Make sure that any agreement for a new tenancy (where no application to the Court has been made) or compromise of the litigation also deals with any actual or prospective interim rent claim.