Allyson Colby considers the approach of the courts when a landlord refuses lease renewal on the ground of plans to redevelop
When parliament enacted the Landlord and Tenant Act 1954 (the Act), it decided that tenants’ rights of renewal should not be allowed to impede redevelopment. Consequently, landlords are entitled to oppose the grant of new business tenancies if they intend to demolish or reconstruct their premises: section 30(1)(f).
In S Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB); [2017] PLSCS 145, the landlord worked up a scheme to satisfy ground (f).
Key points
- The Landlord and Tenant Act 1954 requires the court to consider the landlord’s intentions, as opposed to any underlying motives for carrying out redevelopment work
- Provision of an undertaking to carry out the work may help to convince the court of the landlord’s intentions
- When a tenancy ends, landlords are allowed a reasonable time to act on their intentions
It admitted that there would be no need to undertake the work if the tenant, who carried on a business specialising in antique tapestries and textile art, had been prepared to vacate at the end of the lease.
However, the premises, which were situated on the ground floor and basement of the Cavendish Hotel, were well located in the heart of a district known for its art galleries, and the tenant was not willing to leave.
The tenant applied to the county court for a new lease. It claimed that the work that the landlord was proposing would be commercially and practically useless.
But the landlord gave the court a written undertaking that it would carry out the work when the lease ended, and the judge was satisfied that it had real prospects of overcoming such modest planning problems as there were, and of obtaining superior landlord’s consent for the work, within a reasonable time (12 months) of the tenancy ending. So the tenant’s application was dismissed.
Landlord’s intentions
In the High Court proceedings that followed, the tenant argued that parliament had not intended to allow landlords to subvert the legislation by carrying out expensive work solely in order to evict tenants, especially if such work would render premises unusable.
It tried to persuade the judge that the landlord would never have dreamed of carrying out its scheme in a “no-Act world”, and that this deprived its intentions of the quality necessary to satisfy the Act.
The judge was unmoved. The legislation had not been enacted to secure the most efficient use of land. The tenant was, in effect, challenging the landlord’s motives, even though ground (f) requires the court to examine what work the landlord intends to do and whether it intends to do it, as opposed to why.
A landlord’s motives may be relevant if they cast doubt on its intentions, and the courts may be sceptical if a landlord admits that it is motivated solely by its desire for vacant possession.
But any scepticism about the artificiality of the landlord’s scheme had been allayed by its undertaking to do the work when the lease ended – and breach of the undertaking would be a contempt of court.
Pause for thought
The decision is bound to provoke discussion. However, it has long been established that the courts are not required to police the wisdom or long-term viability of projects.
In addition, landlords can oppose applications for new business leases if they intend to demolish or reconstruct premises. In other words, demolition alone will satisfy ground (f), even though this renders premises completely unusable.
It is also worth noting Saturn Leisure Ltd v Havering London Borough Council [2014] EWHC 3717 (Ch); [2014] PLSCS 321. It concerned a different point of law, arising from an agreement to settle contested 1954 Act proceedings.
However, the landlord had formed a similar intention: to demolish its premises, if needs be, in order to satisfy ground (f), but to leave them standing if it could obtain possession without a court order. The court did not need to pass judgment on this, but seemed quite undisturbed by the landlord’s thinking.
So perhaps the decision in Cavendish Hotel is not quite as surprising as it might, at first, seem.
Implementation
The courts accept that landlords should have a reasonable time after the termination of a tenancy in which to act on their intentions: see Method Developments v Jones [1970] 217 EG 403 (a ground (g) case). The county court was satisfied that the landlord could reasonably expect to overcome any obstacles and implement its scheme within a 12-month timeframe. Was this too generous?
The tenant referred the High Court to section 31(2), which applies where a landlord narrowly fails to establish an intention under grounds (d), (e) or (f) at trial, but satisfies the court that it will do so at some future date. That future date must be not more than 12 months after the termination date specified in the landlord’s section 25 notice or the tenant’s section 26 request.
The court can then extend the tenancy to that future date, if it falls after the date calculated in accordance with section 64 (which extends tenancies while proceedings are on foot until three months and 21 days after the court disposes of them).
Trials often take place too late in the day for section 31(2) to apply, but the tenant argued that it set the bar on what constitutes a reasonable period for landlords to carry out their intentions. The High Court disagreed; sections 30(1) and 31(2) are entirely different provisions.
In the balance
However, no court had ever allowed a landlord such a generous period in which to act on its intentions before and further findings of fact were needed to decide what was reasonable.
The High Court also directed the county court to identify work that could be done pursuant to rights of entry under the tenant’s lease and work that required legal possession of the holding. The county court’s response will determine the tenant’s fate, unless the Supreme Court agrees to hear the leapfrog appeal that the tenant has applied to make.
Allyson Colby is a property law consultant
