Vivienne Westwood Limited goes to court over side letter in property lease

A side letter in the lease to Vivienne Westwood’s Mayfair store provided for Vivienne Westwood Ltd (“Westwood”) to pay a reduced rent (£90,000/annum) for the first five years and then a capped rent (£125,000/annum) for the next five years regardless of what any rent review found the market to be.

The side letter contained termination provisions which stated that if there was a breach of the terms of the side letter or lease, the side letter may be terminated with immediate effect and the rents set out in the main lease would be immediately payable (as if the side letter never existed).

In June 2015, Westwood breached one such provision by failing to pay their rent and the landlord gave notice to terminate the side letter. Westwood subsequently paid the rent arrears for June; however the landlord claimed that the rent was now payable at the full market rent (£232,500/annum) due to the termination of the side letter.

In a March judgement, the court held that the side letter was still valid as the termination provisions amounted to a penalty clause (i.e. there was a penalty that if the tenant failed to pay, the rent would increase from £125,000 to £232,500). As the penalty (£107,500) was completely disproportionate to the damages suffered (£31,250), this was an unenforceable penalty clause.

The court concluded that Westwood was therefore entitled to continue to pay rent at the capped rate of £125,000/annum provided the terms of the side letter were satisfied.

Rebecca McCarthy is a trainee solicitor at Barker Gotelee.

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