Some of the grounds for opposing the renewal of business leases set out in the Landlord and Tenant Act 1954 relate to the tenant’s past behaviour. As a result, the court can refuse to order the renewal of a lease if it considers that “the tenant ought not to be granted a new tenancy” because the tenant has failed to keep the premises in repair (ground (a)), or has persistently delayed in paying rent (ground (b)), or in view of any other substantial breaches of the tenant’s obligations or for any other reason connected with the tenant’s use or management of the holding (ground (c)).
The legislation does not explain how the phrase “ought not to be granted a new tenancy” should be construed. However, Mussellwhite v Youssefi [2014] EWCA Civ 885; [2014] PLSCS 200 provides us with up-to-ate judicial guidance as to its meaning.
The parties interpreted the phrase differently. The tenant claimed that the court should ask whether, looking forward to the hypothetical new term, the landlord’s interests would be prejudiced by continuing in a landlord and tenant relationship with this particular tenant. However, the landlord thought that the court should consider whether, having regard to the tenant’s past behaviour and performance, it would be fair to require her to continue the landlord and tenant relationship with her tenant.
The Court of Appeal decided that the court’s discretion was not circumscribed by the legislation itself, or by any previous authorities. It was appropriate to ask both questions and the landlord did not need to establish that her tenant’s breaches of covenant would adversely affect her rental income, or the value of her reversion, to satisfy the court that her interests would be prejudiced or that it would be unfair for a new tenancy to be granted. This would be too concrete a test and would constitute an inappropriate constraint on the wide discretion conferred by the legislation.
The court went on to uphold the county court judge’s decision to refuse to order the landlord to renew the lease. It accepted that the breaches of the tenant’s repairing obligations were relatively modest, but upheld the landlord’s objections to the renewal of the lease on ground (c). The trial judge had held that the tenant had been obstructive and intransigent, which had made the relationship between the parties exceptionally difficult, and that she had persistently and wilfully refused to allow the landlord access to inspect the premises and had broken the user covenants in her lease.
Interestingly, the court agreed that the tenant was in breach of her covenant ” to use the Premises for the purposes of any retail trade within Classes A1 and A3 of the Town & Country Planning (Use Classes) Order 1987” because her use of the premises was either minimal, or non-existent, and did not fall within either of the use classes mentioned in the lease. However, the court’s acceptance that the user covenant imposed a positive obligation on the tenant actually to use the premises in accordance with her covenants in the lease should, perhaps, be viewed in the light of the special circumstances of this particular case, and not as a game changer in relation to the law on “keep open” covenants as explained in Co–operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 3 All ER 297; [1997] 1 EGLR 52.
Allyson Colby is a property law consultant
