The tenant is not obliged to take a renewal lease
The tenant has various options to avoid taking a new lease. However, if the tenant has participated in the renewal process before changing its mind, and has not acted reasonably, it might have to pay the landlord's costs. A landlord might commence (or threaten to commence) renewal proceedings to persuade the tenant to disclose whether it really wants a new tenancy early on. A tenant who does not genuinely wish to renew its lease is unlikely to risk incurring the legal costs of lease renewal proceedings.
If the tenant has applied to court for a new tenancy, the tenant can discontinue its application under CPR 38 without the landlord's consent and without requiring the court's permission. The discontinuance takes effect on the date when notice of discontinuance was served on the defendant (CPR 38.5(1)). Unless the court orders otherwise, a claimant who discontinues a claim is liable for the costs which a defendant incurred up to the date the notice was served (CPR 38.6(1)).
If the landlord has applied to court for a new tenancy and the tenant informs the court that it does not want a new tenancy, the court will dismiss the landlord's application (section 29(5), LTA 1954). But if the tenant is considered to have adopted the landlord's claim as a vehicle for its own claim before deciding unilaterally to exercise its rights under section 29(5), the tenant could be liable for the landlord's costs under CPR 38.6(1).
If the court orders a new lease on terms that are unacceptable to the tenant, but the court order is not suitable for appeal or the tenant merely does not want to incur the further costs of an appeal, the tenant can apply for revocation of an order for a new lease. The application for revocation must be made within 14 days after the order is made (section 36(2), LTA 1954). If the tenant applies within the deadline, the court must revoke the order. However, the tenant will often have to pay the landlord's costs. The court has discretion to revoke or vary any costs provision in the order or, if no costs were awarded, award costs (section 36(3), LTA 1954). If the court does not exercise its discretion, the parties will continue to be bound by the costs provision in the order.
The landlord and the tenant can agree not to act on an order for a new lease (section 36(1), LTA 1954). Any agreement between the landlord and tenant must be in writing to be binding (section 69(2), LTA 1954).
Consequences of an order for the grant of a new tenancy
Section 36(1) of the LTA 1954 sets out the consequences of an order for the grant of a new tenancy. The landlord must execute or make in favour of the tenant, and the tenant must accept, a lease or agreement for lease containing the terms agreed between the parties or determined by the court unless either of the following applies:
The court revokes the order under section 36(2). If the tenant applies for revocation of the order within 14 days after the order is made, the court must revoke the order.
The landlord and the tenant agree not to act on the order.
Enforcing an order for the grant of a new tenancy
The LTA 1954 does not address the consequences of failure to comply with the terms of an order for the grant of a new lease.
If the parties do not comply with the order, an equitable tenancy will arise.
Either party can apply to court for an order forspecific performance to enforce the other party's compliance with the order. It is likely that the original order for a new tenancy has a similar effect to an order for specific performance, in which case either party can simply apply to court for an officer to execute the lease in the name of the defaulting party.
There is debate whether there is contempt of court in not following the order (particularly where the order does not set a deadline for compliance) and whether a statutory contract has been created which would be enforceable by applying for specific performance.
Costs of lease renewal proceedings
The court has discretion to award costs of proceedings brought under the LTA 1954. Any award will reflect:
A presumption that the "winning party" should have some of its costs paid by the "losing party" (such as a landlord who unsuccessfully opposes the grant of a new tenancy).
Any Part 36 offer or other offer made "without prejudice save as to costs".
The parties' conduct in preparing and presenting the case.
If the parties agree the new lease without applying to court, the usual practice is for each party to pay its own costs.
Where the negotiations have not been particularly contentious and proceedings have been issued merely to preserve the tenant's right to a lease renewal, the parties often agree to pay their own costs. In such circumstances, instead of issuing a notice of discontinuance it may be more appropriate to enter into a consent order bringing the claim to an end and reflecting the agreed costs position.
The above sets out the position in your hypothetical scenario.
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