The Landlord and Tenant Act 1954 confers security of tenure on business tenants. It gives them a greater degree of protection than they had previously enjoyed, but recognises that landlords are entitled to have their land back if they genuinely intend to carry on business there themselves (section 30(1)(g)). However, the courts have set the bar high when considering whether the conditions, which landlords must first satisfy, have been met.
Last week’s legal notes column focused on the application of rules that prevent a landlord from relying on ground (g) if its interest is purchased or created within the previous five years. This week, the requirements that landlords must meet to prove their intentions are considered. The context is a fiercely contested legal battle over the renewal of business leases of an oil jetty and other premises in the port of Immingham.
Battle for control
Humber Oil Terminals Trustee Ltd v Associated British Ports [2012] EWCA Civ 596 concerned an oil terminal that was designed and built in the 1960s, contemporaneously with two inland refineries. The terminal incorporated a jetty, which was used by large ocean-going tankers, and served the refineries exclusively.
The owners of the refineries had established a joint venture company, which took a 40-year lease of the bare jetty at a rent calculated by reference to the capital cost of its construction, on terms that exempted it from harbour dues and charges. The exemption was made to compensate the tenant for the investment needed to build the refineries and for the costs of laying the pipework to and from the terminal and of equipping the jetty.
The landlord opposed the tenant’s application for the renewal of its leases on ground (g). It did not intend to disrupt the flow of crude oil to, or the export of refined products from, the refineries, which together account for approximately a quarter of the present oil refining capacity of the UK. However, it did want operational control of the jetty so that it could charge the owners of the refineries for the use of the jetty. It also wanted to use it to supply third parties. If the landlord was successful, the owners of the refineries faced a stark choice: to come to a different commercial arrangement with the landlord, or to move elsewhere.
The High Court decision
The High Court accepted that the landlord genuinely intended to re-occupy the terminal on the termination of the leases. However, it has long been settled that a landlord must establish not only that it has a fixed and settled intention to carry on business from the premises but also that it has a reasonable prospect of being able to do so (Cunliffe v Goodman [1950] 2 KB 237). The first element of the test is subjective. The second is an objective one. The landlord must establish that it has a reasonable prospect of overcoming any obstacles in its path; for example, by securing any finance or planning permission needed for its intended use.
The tenant seized on the logistical and other hurdles that the landlord would have to surmount. The lease contained a provision that enabled the tenant to remove all its infrastructure and equipment at the end of the tenancy. Although it would cost the tenant approximately £10m to do so, the cost to the landlord would be around £60m. It would also take at least two years to replace the items that the tenant was entitled to remove. This would interrupt the use of the terminal, unless the landlord could acquire the tenant’s pipework and equipment, and its expertise, personnel, proprietary software and systems manuals, which the tenant was unwilling to share.
The trial judge dismissed the tenant’s application for new leases. He took the view that, on the termination of the leases, economic considerations would prevail. The tenant would reach a new commercial arrangement with the landlord so that the oil companies could continue to use the terminal to service their refineries. Therefore, the landlord did have a reasonable prospect of assuming operational control of the terminal because the tenant would co-operate with the landlord to make the new arrangements work.
Viability of the landlord’s intention
The tenant thought that the judge had reached his decision circuitously and asked the Court of Appeal to overturn the ruling. It argued that the judge had assessed the viability of the landlord’s intentions on the hypothesis that it had already successfully opposed the renewal of the tenancies. Consequently, the landlord was relying on a state of affairs that would arise only if it were to succeed on ground (g).
The tenant suggested that it would be impossible for the landlord to operate the terminal without its co-operation. It argued that the landlord should be required to prove its ability to implement its intentions independently of the bargaining position that it would gain by defeating the tenant’s application.
The Court of Appeal sympathised with the tenant, but upheld the judge’s decision. It explained that a landlord opposing the grant of a new tenancy on ground (g) must establish its intention to occupy the holding to
carry on business there “on the termination of the current tenancy”.
In other words, the legislation requires the court to assess the prospects of the landlord achieving its stated intentions on the basis that the tenancy has determined and that the landlord has regained possession of the premises: Westminster City Council v British Waterways Board [1985] AC 677 applied.
Their Lordships rejected the tenant’s attempt to restrict the application of Westminster City Council. The court was entitled to take account of the landlord’s potential dealings with its former tenant, as well as any potential dealings with third parties, when the tenant’s lease determined. The judge had made the correct statutory assumption and had then made findings of fact about the probable outcome of commercial negotiations between the parties which confirmed that the landlord did have a reasonable prospect of carrying out its intentions.
