Allyson Colby offers her own analysis of the biggest property case of 2018
Key points
- Landlords cannot circumvent claims for new tenancies by proving an intention to carry out works designed solely to force tenants out
- A landlord’s intentions must exist independently of its tenant’s claim to a new tenancy
- So the court must ask whether the landlord would do the same work if the tenant were to leave voluntarily
The language used in ground (f) of section 30 of the Landlord and Tenant Act 1954 (the 1954 Act) is clear. It enables landlords to oppose a tenant’s application for a new tenancy if, on the termination of the current tenancy, the landlord “intends” to demolish or reconstruct the premises or a substantial part of them, or to carry out substantial construction work, and could not reasonably do so without obtaining possession of the property.
Because ground (f) is framed solely by reference to “intention”, it might appear that, no matter what a landlord’s motives might be, so long as it can satisfy the court that it really intends to demolish or reconstruct premises, it can plan work solely in order to force a tenant out. But the Supreme Court decided otherwise in S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62; [2018] PLSCS 212 (see also p48).
Landmark case
The tenant occupied premises on the ground floor and basement of the Cavendish Hotel in London. The area is well known for its art galleries and the tenant specialised in antique tapestries and textile art. So, when its lease ended, it wanted to stay. But the owner of the hotel wanted vacant possession and devised a scheme costing an estimated £776,707, plus VAT, and an additional £324,000 in statutory compensation, in order to satisfy ground (f).
The landlord frankly admitted that the work that it was proposing was, to all intents and purposes, commercially and practically useless – and that there would be no need for the work, had the tenant been willing to vacate at the end of its lease. But it gave the court a written undertaking that it would carry out the work when the lease ended. So the tenant’s application for a new business lease was dismissed.
Fixed intention
In a leapfrog appeal to the Supreme Court, the landlord argued that its motives for undertaking the work, the reasonableness of its intentions, and the objective utility of the works were irrelevant. It “thoroughly intended” to undertake the work because it was a way of obtaining possession – and that was that.
The existing authorities suggested that the landlord had a good case. In London Hilton Jewellers Ltd v Hilton International Hotels Ltd [1990] 1 EGLR 112 an undertaking to carry out work was a decisive factor, which compelled “fixity of intention”. And similar undertakings have been offered and accepted in numerous other cases, helping to establish landlords’ intentions. But the Supreme Court took a different view.
Acid test
The court acknowledged that the protection conferred by the 1954 Act interferes with a landlord’s proprietary rights and should be carried no further than the statutory language and purpose require. But it took the view that parliament could not have intended that a landlord should be able to defeat a claim to a new tenancy by asserting and proving an intention to carry out works solely for the purpose of getting rid of a tenant.
Lord Sumption pointed to the requirement in section 30(1)(f) that the landlord cannot reasonably undertake the work that it proposes “without obtaining possession of the holding”, and also to section 31A, which states that the requirement will not be satisfied if the work can reasonably be carried out by exercising a right of entry and the tenant is willing to include such a right in its new lease. He explained that these provisions indicate that, to satisfy ground (f), the tenant’s occupation must obstruct the work that the landlord is proposing. So the acid test is: would the landlord do the same work if the tenant were to leave voluntarily?
Quality of intention
In this case, the landlord’s intention, backed by its undertaking to the court, was genuine. But Lord Sumption described it as a “conditional intention” because the landlord intended to carry out the work only if the tenant requested a new business tenancy. So, although they are irrelevant in themselves, it seems that the landlord’s motive or purpose may provide evidence of the quality of its intention at the time of the hearing – and may, to quote Lord Briggs, mean that a landlord’s intention is of a “disqualifying conditional kind”.
Furthermore, although the statutory test does not depend on the objective utility of the works, Lord Sumption indicated that a lack of utility may also be evidence from which the conditional character of a landlord’s intention may be inferred.
Implications
The court agreed that the same test must be applied if a landlord has to create additional work in order to obtain possession when a tenant’s lease ends, because the work originally planned would be insufficiently substantial or disruptive to warrant the refusal of a new tenancy. In such cases, the tenant’s claim to a new tenancy will normally be tested by reference only to the work that the landlord “unconditionally” intends.
The decision reinforces the protection enjoyed by tenants under the 1954 Act and is likely to prompt tenants to examine their landlords’ proposals for development much more closely and to question precisely how they have evolved. And, as Lord Briggs accepted, this may result in factual questions of some nicety, which are incapable of resolution by offering the court an undertaking to carry out the work.
Could the ripples spread to ground (f) cases involving building leases? The possibility was raised, but rejected, at first instance in Santander UK plc v LPC Estates Ltd [2018] EWHC 2193 (Ch). However, the Supreme Court decision could certainly have implications for cases involving ground (g) (the landlord intends to occupy the premises itself).
Allyson Colby is a property law consultant
