The terms of a rental agreement that would have meant fashion designer Vivienne Westwood having to pay an extra £100,000 on her flagship store in Mayfair were too severe to be enforceable, the High Court has ruled.
Vivienne Westwood Ltd leased the premises from Conduit Street Development Ltd in 2009 on a 15-year term with rent reviews after 5 and 10 years.
A side letter was entered into at the same time as the lease. Under its terms, the landlord agreed to accept a lower rate of rent, increasing gradually from £90,000 for the first year to £100,000 for the fifth year.
It would then be capped at £125,000 per annum for the following five years if a higher open market rent was determined upon the first rent review.
The lower rent set out in the side letter was terminable by the landlord if the tenant breached any of the terms and conditions of the side letter or lease, in which case the rents would be payable in the manner set out in the lease, as if the side letter had never existed.
The tenant failed to pay the rent in June 2015 and the landlord asserted that the side letter had been terminated and that the open market rent was payable. The High Court rejected this argument. It held that the terms of the side letter amounted to a penalty and were therefore unenforceable.
Under the side letter, the same substantial financial adjustment applied whether a breach was a one-off, minor, serious or repeated, and without regard to the nature of the obligation broken or any actual or likely consequences for the landlord. That had long been recognised as one of the hallmarks of a penalty.
The extra financial detriment to the tenant seemed exorbitant and unconscionable.
Please contact us if you would like more information about the issues raised in this article or any aspect of commercial property law on 02920 345511 or firstname.lastname@example.org