Interim rent is a source of confusion for landlords, tenants and practitioners alike. Our team deals with hundreds of lease renewals each year, and this short guide deals with some of the more frequently asked questions.
When does interim rent start?
Interim rent is payable from the earliest date on which the tenancy could have been brought to an end by the relevant Section 25 notice, or the tenant could have given in its Section 26 notice for commencement of the new tenancy.
So, two key points arise:
- No claim for interim rent will arise unless a Section 25 or Section 26 notice has been served.
- The date specified in the notice is not necessarily the relevant date for interim rent purposes. The key is to look at when the notice was served. Remember that the notice cannot end the tenancy any earlier than contractual expiry and must give a minimum six months' notice. For example:
Tenancy A expires on 25 October 2013. Tenancy B expires on 25 June 2013. The landlord serves Section 25 notices on both tenants. The notices are deemed served on 21 January 2013. The interim rent period relating to Tenancy A commences on 26 October 2013. The interim rent period relating to Tenancy B commences on 22 July 2013.
Who can make an application?
Either landlord or tenant may apply for an order determining an interim rent. Only one application at a time may be made, either within a renewal application or as a stand alone claim. If a tenant makes an application for a new tenancy which includes a claim for interim rent, but subsequently discontinues leaving interim rent outstanding, the landlord may make a fresh interim rent application. Applications may not be made any later than six months after termination of the relevant tenancy.
Will the interim rent be the same as the new rent?
In the case of a renewal of whole, usually the answer is yes. The starting position is that where, following service of either a Section 25 notice or a Section 26 request, the landlord grants a new tenancy of the whole of the existing demise, the interim rent will be the same as the 'rent payable under and at the commencement of the new tenancy'.
There are two exceptions to the usual starting position:
- Substantial changes in the market since the start of the interim rent period
The party relying on this exception must show that if the court determined the new rent at the commencement of the interim rent period, this rental figure would differ substantially from the rent valued as at the commencement of the new tenancy. If the court agrees, the interim rent will be valued at the commencement of the interim rent period.
- Where the terms of the new tenancy are different to those of the old tenancy
The party must show that if the court determined the rent for a tenancy commencing on the same date as the new tenancy, but on the terms of the old tenancy, the rent would be substantially different.
The appropriate valuation date where a party claims that there has been a substantial change in term is not expressly stated in the Act, but prevailing opinion suggests that the interim rent will be valued at the commencement of the interim rent period.
If the exceptions apply, on what basis is the rent valued?
Where a party relies on the market change exception alone, the interim rent is valued in the same way as the new rent, i.e. under Section 34 of the Landlord and Tenant Act 1954 (the statutory basis for calculating the rent for the new tenancy), with the only difference being the valuation date.
Where a party relies on the effect of changed terms (by itself or in addition to a market change), the rent will be that 'which it is reasonable for the tenant to pay' during the interim rent period. This will be the rent determined in accordance with Section 34 for a tenancy on the same terms as the new tenancy (including term), but with regard to the rent payable under the continuing tenancy and to the rent payable by any sub-tenant(s) of part of the premises demised and to be demised to the tenant.