Q&A: Business tenancies: Improvements and the determination of rent

In an unopposed lease renewal under the Landlord and Tenant Act 1954, improvements carried out by the tenant are to be disregarded when establishing the rent. Would improvements carried out under an agreement for lease but prior to the actual commencement of the lease amount to improvements carried out 'during the current tenancy' and thus fall to be disregarded (assuming they were carried out by the tenant and not pursuant to an obligation to the landlord)? 

There are a number of exceptions to the general principle that improvements carried out by the tenant are to be disregarded when establishing the rent under section 34 of the Landlord and Tenant Act 1954 (LTA 1954). Where an improvement that has been made to property has been carried out by a tenant pursuant to an obligation to the landlord, it will be taken into account when determining the rent. If, however, the improvement was not carried out pursuant to an obligation under the lease (but rather, for example, by way of a licence to alter) then the improvement will be disregarded if it has been carried out during the term of the current tenancy.

The improvement would not amount to an improvement 'carried out during the current tenancy' if the works were carried out under an agreement for lease. This is because: 

• References: Hambros Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd [1985] 1 EGLR 99 

LTA 1954, s 34 requires the person who has carried out the improvement to be the tenant at the time (Hambros Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd), and

• the works would have been carried out prior to the tenant entering into the current tenancy

Therefore, the improvement works will instead have been carried out by a future tenant under a licence in contemplation of the grant of the current tenancy. Any improvements carried out under an agreement for lease will not, therefore, be disregarded under LTA 1954, s 34 as having been 'carried out during the current tenancy'.

However, even if it was not carried out during the current tenancy, the improvement may still fall to be disregarded if all of the following conditions are satisfied: 

• the improvement works were completed no more than 21 years prior to the application to court for a renewal lease, and
• the holding, or the part of the holding affected by the improvement, has at all times since the improvement been comprised in a tenancy or tenancies to which LTA 1954, s 23(1) applies (for example, occupied for business purposes), and
• at the termination of that tenancy or tenancies, the tenant did not quit the holding 

References: Landlord and Tenant Act 1954, s 34(2)

See Practice Note: LTA 1954—terms of the renewal lease.