Louise Clark considers a recent Court of Appeal decision in which overall performance was deemed relevant to whether a tenant “ought not” to be granted a new business tenancy.
Key points
- When considering fault grounds, the court should consider the tenant’s conduct during the tenancy
- Whether the tenant ought not to be granted a new tenancy is an overall question of whether it is fair to compel the landlord to grant a new tenancy
Two key issues affecting business tenancy renewals under Part II of the Landlord and Tenant Act 1954 were considered by the Court of Appeal in Gill v Lees News Ltd [2023] EWCA Civ 1178 ; [2023] PLSCS 171:
- by reference to what date must the landlord’s grounds of opposition to the grant of a new tenancy be established; and
- what is the scope of the value judgment implicit in the phrase “the tenant ought not to be granted a new tenancy”?
Background
The respondent, Lees News Ltd, the tenant under two leases of business premises in London, W10 served requests under section 26 of the 1954 Act seeking new tenancies in August 2018. The appellant landlord, Harmohinder Singh Gill, as trustee of a pension scheme, opposed new tenancies.
Three grounds of opposition under section 30(1) of the 1954 Act were relied on, namely that the tenant ought not to be granted new tenancies:
(a) because the state of repair of the holding was due to the tenant’s failure to comply with its obligations to repair and maintain it;
(b) in view of the persistent delay in paying rent due; and
(c) in view of other substantial breaches of lease obligations.
The tenant argued that the premises were not in substantial disrepair as a result of breach of its repairing obligation. However, in October 2020 it entered into a contract with a building company to carry out the works on which the landlord relied. The tenant did not disclose any documents in relation to the works either in its disclosure or in response to requests for further information. The fact of the contract only came to light at a directions hearing in early July 2021 following which the tenant urged completion of the works as soon as possible.
The decision
Following a trial in May 2022, the judge found that when the counter-notices were served the premises were in substantial disrepair and there had been persistent delay in paying rent. However, the substantial disrepair had been remedied by the date of the hearing. The delay in payment of rent was minor and, he was satisfied, would not recur.
There were other breaches of covenant but they too were minor. The judge also considered criticisms of the tenant’s conduct in the proceedings and failure to make proper disclosure but while the tenant’s formal stance was unfortunate and wrong, these matters did not outweigh his other findings.
The judge considered each ground separately and then collectively concluded that they were insufficient to deny the tenant new tenancies. The tenant had learned valuable lessons concerning compliance with the lease terms. Its business was its livelihood which served the local community. Gill was a hands-off, commercial landlord who had not established that the tenant “ought not” to be granted a new tenancy.
The material time
While Betty’s Cafes Ltd v Phillips Furnishing Stores Ltd [1959] AC 20 decided that the material time for establishing an intention to demolish or reconstruct is the date of the hearing, not the date of the landlord’s notice, there is no binding authority on the date for establishing the fault grounds (a), (b) or (c). The issue has been discussed obiter in a number of cases including Betty’s Cafes.
While a landlord would not rely on ground (a) unless there was disrepair at the date of service of the notice, the judge – who has a discretion as to whether to grant a new tenancy under the fault grounds – would necessarily take into account the state of repair not only at the date of the notice but also at the date of the hearing. There was no authority which confined the court to considering the position only at the date of the hearing.
The underlying policy of the fault grounds is for the court to review the tenant’s overall performance. In order to consider whether there had been persistent delay in paying rent or substantial breaches of covenant, the court is entitled to consider the whole course of the current tenancy. It was the same for disrepair. Events occurring between the date of the notice/counter-notice and the date of the hearing are plainly relevant.
“Ought not”
The overall question for the court when exercising its discretion is whether it is fair to the landlord having regard to the tenant’s past behaviour to compel it to re-enter legal relations with the tenant.
Since the purpose of the 1954 Act is to protect a business tenant’s security of tenure, the court’s discretion in this context operates not to give something but to take away something: Lyons v Central Commercial Properties London Ltd [1958] 1 WLR 869.
Adopting a compartmentalised approach to the grounds of opposition is contrary to the unitary nature of the relationship of landlord and tenant. It could also be unjust: for example, where breaches of covenants under (a), (b) or (c) considered separately would not deny a tenant a new tenancy, but, considered collectively, would do so.
So, a broad value judgment is required, not limited to the landlord’s perspective, but taking account of the tenant’s past performance, any hardship caused by refusing a new tenancy and promises for the future.
The trial judge’s approach, in considering the grounds of opposition singly and then cumulatively was entirely correct and his decision was one he was entitled to reach.
Louise Clark is a property law consultant and mediator
