The High Court resolves the question of whether a tenant can ‘bounce’ a landlord that has not established an intention to redevelop
Key points |
? A landlord is not required to prove its intention to redevelop until the date of any trial of its ground of opposition ? The date will be advanced where this is to be tried as a preliminary issue ? It will not be brought forward to the date of a summary judgment hearing |
The renewal of business tenancies under Part II of the Landlord and Tenant Act 1954 has always been an arena in which tactical games have been played. One of the objectives of the reforms introduced in 2004 (by the Regulatory Reform (Business Tenancies)(
Opposing statutory renewal
The grounds on which a landlord can oppose renewal are set out in section 30(1). The most widely used ground is that in para (f), which allows a landlord to prevent a renewal where it intends to redevelop the demised premises. The courts have always made it clear that the requirement for an “intention” to carry out the work goes beyond desire or contemplation; the landlord must have a reasonable prospect of achieving the desired result. Although that intention does not have to be provable at the date on which a section 25 notice (or counternotice to a tenant’s section 26 request) is served, it must be so by the date of any trial of the ground of opposition.
Accordingly, so long as the landlord is honest in its contemplation of redevelopment, a section 25 notice can validly be served at a time when the necessary intention is not provable. However, the new time limits for court applications mean that a tenant can legitimately make and pursue a prompt application for a new tenancy in the hope that an early court hearing might catch out the landlord. The landlord needs to bear in mind that the mere service of a section 25 notice citing para (f) will entitle a tenant that decides to quit (and may always have been intending to do so) to claim compensation. The fact that the landlord later abandons its opposition does not remove the obligation to pay.
A sensible course, therefore, is for the landlord to delay the service of a section 25 notice until it is confident that it is sufficiently ready to proceed and that the tenant will accept the inevitable and leave without fuss. This approach will generally work, but the landlord needs to be aware of two problems.
First, a tenant that anticipates the delay can try to stymie the landlord by serving a prompt section 26 request. The landlord will be able to preserve its right to oppose only by serving a counternotice within two months, and the benefits of the intended delay can be lost. Second, if the landlord does not serve a section 25 notice until it can satisfy the intention requirement and reinforces that fact to the tenant, it needs to be aware that a later change of heart could prove costly.
In Inclusive Technology v Williamson [2009] EWCA Civ 718; [2009] 39 EG 110, it was held that a tenant that had accepted its landlord’s intention to redevelop was entitled to claim damages for misrepresentation (under the new formulation in section 55) when he discovered that the landlord had abandoned its plans without telling him.
Somerfield litigation
Somerfield arose following the respondent landlord’s 2006 acquisition of the freehold of the appellant’s supermarket premises with a view to redevelop the site. The appellant was anxious to renew its lease (or at least to achieve certainty as to its future) and served a section 26 request in 2007. The landlord served a counternotice opposing this on the basis of para (f). The tenant applied for a new tenancy and a trial was to be held in mid-2008.
Despite this, the parties continued to negotiate until the landlord went into administration. This meant that the tenant could continue its proceedings only with the court’s consent. This was opposed by the administrators, who needed more time to put together a new development package. Nevertheless, the court gave its consent to the tenant (see [2009] EWHC 2384 (Ch); [2009] 48 EG 104 and EG 5 December 2009, p101). When fresh directions indicated that a trial would not take place until May 2010, the tenant applied for summary judgment, arguing that it was necessary for the landlord to prove its intention at the date of that hearing.
There is thus no suggestion that this tenant was using the summary judgment route as a harassing tactic. However, the judge made it clear that this issue had arisen in a number of county court cases and that the outcome of the appeal was awaited with interest. He acknowledged that if the landlord’s intention had to be established at the date of the summary hearing rather than at the date of any prospective trial, this would be an important tactical weapon for tenants because it would drastically reduce the time available to landlords to formulate and put in place their plans.
Stick to the directions timetable
HH Judge David Cooke rejected the tenant’s arguments. The authorities were clear that the date for establishing intention is that of the trial of the landlord’s objection, be that a full trial or the hearing of the matter as a preliminary issue. Only since the changes to the CPR in 1999 has summary judgment become available in such cases. By its nature, a summary hearing does not decide disputed facts. The clear thrust of the authorities is that the landlord should not be put to proof of its intention until a hearing at which evidence is examined to arrive at a determination.
He noted that the existing regime might favour landlords. However, to rule that a procedural change had wrought a transformation of the present balance to one that would advantage tenants was not justified. If a tenant feels that its landlord is dragging its feet, it should hold the landlord to the directions timetable so that the trial is heard in good time.
Sandi Murdoch is an honorary fellow at Reading University
