Cases - O'May v City of London Real Property Co. Ltd

Record details

Name
O'May v City of London Real Property Co. Ltd
Date
[1983]
Citation
2 AC 726
Legislation

Landlord and Tenant Act 1954

Keywords
Lease renewal - other terms of the tenancy - repairing obligations and service charges
Summary

On the expiry of a five-year lease, the landlord proposed a new five year term. However, the proposed new lease transferred various obligations (as to repair and other services of the premises) to the tenant in return for a small reduction in rent. These proposals created a 'clear lease', resulting in the landlord's interest in the premises becoming more valuable. Dismissing the landlord's proposals, the Court of Appeal held that:

  • any departure from the terms of the current lease must be fair and reasonable in all the circumstances; and
  • the burden of persuading the court to change the terms of the current lease on its renewal is on the party proposing the change.

The tenants contended that the terms of the existing tenancy, which provided that they should pay a proportion of the heating and lighting expenses of the common parts, should be retained while the landlords proposed a 5-year 'clear lease' whereby the fluctuating costs of the landlords' obligations for maintenance, repair, redecoration and service of the common parts and the structure and exterior of the building would be borne by the tenants. Even though the landlords offered a corresponding reduction in rent, the House of Lords refused to impose more onerous service charge provisions on the tenants. In so doing, their Lordships gave important general guidance as to the proper application of section 35(1) of the 1954 Act:

  • the court must begin by considering the terms of the current tenancy, which represents the bargain struck by the parties or that imposed by the court on a previous renewal;
  • the party proposing departure from those terms must justify its case;
  • the court should take into account all the relevant circumstances including the weak negotiating position of a sitting tenant and the purpose of the Act which is to protect the tenant's business interests at the end of the term;
  • changes will not be accepted if they are not reasonable and the issue is whether the change can be justified on grounds of essential fairness between the parties;
  • to impose long-term risks on the tenants was not proportionate to the relative interests of the parties in the property even though the landlords were offering a corresponding reduction in rent.

The House of Lords refused to impose the costs of repair and decoration of the structure, exterior and common parts of the building onto the tenants against their will even where the landlord was prepared to accept a lower rent. In particular, it was held disproportionate to impose on the tenants, who were taking a relatively short-term lease, long-term risks which would usually be borne by the landlords.