What Kwik-Fit Properties Ltd v Resham Ltd means for commercial lease renewals

The lease renewal process presents an opportunity to protect your business premises. Lucy Parkhouse, solicitor, and Ros Monk, partner, in our land and property dispute resolution team, consider the case of Kwik-Fit Properties Ltd v Resham Ltd [2024], which clarifies how the court assesses break clauses in lease renewals.

Case background

Kwik-Fit, a national car servicing and repair company with approximately 750 sites nationwide, is the tenant of premises in Tyne & Wear. The original lease was granted in 1996 for a term of 25 years, with no break clause (the Original Lease).

The Original Lease expired in April 2021, but continued under section 24 of the Act, which allows for the continuation of a lease past its expiry date.

In February 2021, Kwik-Fit served a section 26 Notice on the landlord, Resham Ltd, requesting a new tenancy from 10 November 2021; Resham did not serve a counter notice, and so in October 2021 Kwik-Fit issued an application to the court to determine the terms of the new lease (the New Lease).

Kwik-Fit applied to renew the Original Lease for a 15-year term but insisted on including a five-year break clause to maintain operational flexibility, something it claimed was a standard policy.

Resham opposed this request, arguing that frequent break clauses could reduce the property’s investment value and disrupt income stability.

The court ultimately ruled in favour of Resham Ltd, granting a 15-year lease without the inclusion of the five-year break clauses.

Rationale of the judgment

The court acknowledged that while break clauses can be justified in certain circumstances, a tenant must provide compelling evidence that such flexibility is necessary and not just desirable.

HH Judge Davis-White KC, when deciding whether to agree the break clause, set out the factors the court must consider:

1. The Court must first consider the terms of the existing tenancy.
2. The burden of persuading the court to impose a change rests on the person proposing the change.
3. The changes must be fair and reasonable.
4. There must be a good reason, based on fairness, to impose the proposed new term.
5. Otherwise, the discretion is wide.
6. The LTA 1954 is not intended to “petrify” the terms of the existing tenancy…’

HH Judge Davis-White KC referred to the case of First Secretary of State v Greatestates Ltd, in which the tenant requested a break clause after the fifth year of a ten-year term due to its uncertainty in business need; the tenant said that there was a realistic possibility of relocation by the end of the fifth year of the term.

In that case, HHJ Dean QC rejected the tenant’s argument, deeming there was no evidence provided by the tenant that would require the flexibility requested.

In a similar vein, HH Judge Davis-White KC rejected Kwik-Fit’s reliance on a general company policy. The court reviewed Kwik-Fit’s ‘policy’ and found that of the 80 leases Kwik-Fit had renewed after March 2017:

1. The terms of these leases are almost all 10 or 15 years.
2. 23 do not have tenants’ breaks at one (usually the first one at year 5) of the five-year anniversaries of the lease.
3. 25 are said to be renewal or re-gear leases with terms of variously 10 years (18), 15 years (6) and 17 years (1). These have no break option.
4. So, 48 of the 80 leases do not have the pattern of five-year tenants’ breaks, which Kwik Fit says is its policy to obtain.’

The court decided Kwik-Fit’s evidence was insufficient to justify imposing the requested break clause, as it would have detrimentally affected the long-term investment potential of the property.

The court reiterated that any deviation from the original lease’s terms should be rooted in business necessity, rather than convenience or company policy.

The Kwik-Fit decision highlights an important reality: courts are increasingly reluctant to impose flexible terms like frequent break clauses unless tenants can demonstrate a legitimate and justified business need. This has significant implications for commercial tenants negotiating lease renewals.

Practical tips for commercial tenants

When looking to secure a break right in a renewal lease, tenants will need to produce strong evidence to the court to justify the inclusion of a break clause, with reasoning to go beyond merely preference. The court will expect commercial tenants to demonstrate tangible business needs, such as:

• Anticipated changes in market conditions that could affect revenue.
• Business expansion, mergers, or restructuring plans that may impact space requirements; or
• Industry standards show that break clauses are common in similar leases.

With that in mind, tenants should document business needs clearly and well in advance of the lease renewal period. If your lease renewal terms are challenged in court, documentation is crucial. The court will assess whether the tenant has provided enough evidence to justify a break clause. Useful records to keep might be:

• Financial records that could show how a break clause aligns with long-term financial planning.
• Business growth plans that demonstrate any expected operational changes that support your need for flexibility.

To justify the inclusion the tenant needs to show that there is a real possibility it may need to exercise the break clause during the term.

Key takeaways for tenants

Tenants must present concrete and business-driven reasons for requesting flexibility. Those reasons need to be specific and must relate to the property concerned. This case shows that simply relying on a standard corporate policy will not necessarily be enough to persuade the court to include a break right.

Effective negotiation and thorough documentation can significantly improve the likelihood of securing favourable lease terms. Tenants should also bear in mind that the inclusion of a break right may have a bearing on the rent payable, and there is likely to be a cost to greater flexibility.

By staying informed about evolving case law, having strong evidence-based arguments, and anticipating landlord concerns, commercial tenants can better position themselves for success during lease renewal.

If you would like to speak with one of our lawyers, please get in touch with our land and property dispute resolution team on 01772 258321.