In this month’s potted guide, Jonathan Seitler QC guides practitioners through the basics of the law relating to section 30(1)(f) of the Landlord and Tenant Act 1954 – the right of a landlord to oppose a tenant’s statutory right to renew a business lease on the ground that the landlord intends to redevelop
Ground (f) checklist
- What must a landlord show to establish ground (f)?
- What is “the holding” for the purposes of ground (f)?
- Who is the landlord for the purposes of ground (f)?
- At what time is the necessary intention under ground (f) judged?
- What works will fall within the definitions in ground (f)?
- When can works reasonably be done without obtaining possession of the holding?
- What must the landlord show in order to prove that its intention to carry out the works is genuine?
- What is the scope of the tenant’s ability to use section 31A of the LTA 1954 to defeat the landlord’s opposition to a lease renewal under ground (f)?
- What are the provisions for statutory compensation?
What must a landlord show to establish ground (f)?
The landlord must prove (the onus being on the landlord) that on the termination of the current tenancy it intends: (a) to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises; or (b) to carry out substantial work of construction on the holding or part thereof; and (c) that it could not reasonably do so without obtaining possession of the holding.
What is “the holding” for the purposes of ground (f)?
Each limb of ground (f) only relates to the holding. The Landlord and Tenant Act 1954 (“the 1954 Act”) defines the “holding” as the part of the premises that the tenant occupies for the purpose of its business. So works which the landlord intends to carry out to parts of the premises demised by the lease, but which the tenant does not occupy for the purpose of its business, are not works that can count towards opposition to the renewal of a new tenancy under ground (f).
Who is the landlord for the purposes of ground (f)?
The landlord for the purposes of ground (f) is the competent landlord within the meaning of section 44(1) of the 1954 Act. That is the owner of the interest in reversion expectant (whether immediately or not) on the termination of the relevant tenancy that is either the fee simple or a tenancy which will not come to an end within 14 months by effluxion of time and, if it is such a tenancy, that no notice has been given bringing it to an end within that period or any further time extended by the 1954 Act.
This means that a landlord who intends to obtain possession under ground (f) and then sell to a developer who will do the works will not be the right landlord for the purpose of ground (f). The creation of a joint venture or building lease will be required.
At what time is the necessary intention under ground (f) judged?
The intention must be proved as at the date of trial: Betty’s Cafes Ltd v Phillips Furnishing Stores Ltd [1958] EGD 92. This usually means the trial of the preliminary issue as to whether the landlord can rely upon ground (f): Dutch Oven Ltd v Egham Estate & Investment Co Ltd [1968] 207 EG 247.
What must be proved on that date is that the works will be carried out “on the termination of the current tenancy”, which is the later of three months after the date that the claim under the 1954 Act is “finally disposed of” as per section 64 of the 1954 Act, or the date specified in the section 25 notice or the section 26 request. This means three months after the time to appeal any order has expired, which is 21 days after the order is made, if not extended under CPR 52.4(2). There is then some further leeway after that: in practice, it is enough if the landlord’s intention is to start work “within a reasonable period of time” – say three months – after the termination of the existing lease: see Livestock Underwriting Agency Ltd v Corbett and Newson Ltd [1955] 165 EG 469.
What works will fall within the definitions in ground (f)?
Demolition is given its normal meaning – the physical destruction of the premises: Ivorygrove Ltd v Global Grange Ltd [2003] EWHC 1409 (Ch); [2003] 2 EGLR 87.
“Reconstruct” means to “rebuild” – a substantial interference with the structure of the premises and then a rebuilding, in probably a different form, of such part of the premises as has been demolished (ie more than just repair or improvement). A “work of construction” involves bringing into existence a new substantial structure, rather than just altering the old one.
When can works reasonably be done without obtaining possession of the holding?
“Possession” in this context means legal as well as physical possession. It means that works which the landlord is entitled to carry out under the existing lease and under the lease as renewed – because of a right in the lease to enter and carry them out – will not count towards relevant ground (f) works: see Romulus Trading Company Ltd v Henry Smith’s Charity Trustees [1990] 2 EGLR 75.
So where the lease of a petrol filling station contained a reservation permitting the landlord to enter the property for the purpose of carrying out improvements, it was held that that clause entitled it to demolish and reconstruct the filling station; and consequently legal possession was not required to carry out those works (Price v Esso Petroleum Co [1980] 2 EGLR 58). Accordingly, it is only if the works will result in the landlord going beyond the reservation in the lease that it will be held to require legal possession of the premises.
If, as is common, however, the reservation in a lease only entitles the landlord to enter and carry out works then make good all damage, the tenant will not be able to rely on it if the works are such that damage cannot be made good (for instance, if parts of the premises are removed entirely). The tenant cannot resist opposition to a renewed lease on the basis of a reservation which the works go beyond, either in scope or duration.
In Shade v Eric Wright Commercial Ltd [2001] EWCA Civ 950, the landlord was entitled to enter and carry out the works but it would involve the tenant being out of occupation for between five and eight months. That was held to be too long a period to exclude the tenant and so the landlord succeeded in its ground (f) opposition to a new lease. If, therefore, the court concludes that the physical effects of the work on the use of the holding for the purposes of the business carried on by the tenant – either during the works or thereafter – make it unrealistic for a new lease to be granted, the lease will not be renewed.
What must the landlord show in order to prove that its intention to carry out the works is genuine?
It must show three things: first, that the project has a history and that it has evolved in a normal, credible way; second that it makes sense to carry them out; and third that there is an ability to carry them out.
The first requires showing how the project has come about, with documents such as board minutes showing that the works have verisimilitude. The landlord’s intention must have moved “out of the zone of contemplation” and into “the valley of decision” (Cunliffe v Goodman [1950] EGD 131). Note, though, that it is the landlord’s intention, not its motive, which is relevant. It does not even matter that the landlord’s motive for the development is the removal of the tenant if its genuine intention is nevertheless to carry out the works.
The second involves showing, usually by disclosure of professional advice given to the landlord’s decision makers, that the works are commercially viable/advisable. Showing how the premises are “ripe for redevelopment” is a common way to do this.
The third involves showing the ability to bring the works about. This will include feasibility studies (with working drawings) and detail as to the position as regards: (i) planning or the reasonable likelihood of planning/building consent (or, if it has been refused, a reasonable prospect of success of appeal: see Dogan v Semali Investments Ltd [2005] EWCA Civ 1036; [2005] 3 EGLR 51); (ii) costing and funding; (iii) the identification of the proposed developer; (iv) vacant possession of any other part of the development site; and (v) rights of light or rights of way issues and whether, if these exist, they can be overcome.
However, none of this means that the landlord necessarily must be able to commence the development immediately: there need only be a reasonable prospect – a decent chance – of overcoming any obvious hurdles (Cadogan and another v McCarthy and Stone (Developments) Ltd [1996] EGCS 94).
What is the scope of the tenant’s ability to use section 31A of the LTA 1954 to defeat the landlord’s opposition to a lease renewal under ground (f)?
If the tenant is willing to accept (a) a new lease under which the landlord is entitled to enter and carry works; or (b) a new lease of an economically separable part of the premises, so as to enable the intended works to be carried out in the other parts, the court cannot refuse to grant a new lease.
In assessing (a), the court will examine whether the landlord’s works can reasonably be carried out without obtaining possession of the premises, which involves an examination of whether the level of interference with the tenant’s use of the premises will be of a substantial extent or for a substantial time (Cerex Jewels Ltd v Peachey Property Corporation plc [1986] 2 EGLR 65). In Redfern v Reeves [1978] 2 EGLR 52, the tenant being kept out of the premises for between two and four months was held to be a sufficiently substantial interference.
The court will not order that the landlord should carry out different works, though it can require the landlord to alter the sequence and mode of working if reasonable in terms of costs and time (Graysim Holdings Ltd v P&O Property Holdings Ltd [1993] 1 EGLR 96).
What are the provisions for statutory compensation?
Statutory compensation is available to a tenant where the landlord successfully opposes renewal of the lease on ground (f) and the tenant has not successfully taken the defence of accepting an economically separate part of the holding.
The compensation is a multiplier of the rateable value of the property, twice the rateable value where the tenant and its predecessor have carried on the same business and have been in occupation for business purposes for the past 14 years or more.
Leading authorities
Betty’s Cafes Ltd v Phillips Furnishing Stores Ltd [1958] EGD 92
Cunliffe v Goodman [1950] EGD 131
Price v Esso Petroleum Co [1980] 2 EGLR 58
Romulus Trading Company Ltd v Henry Smith’s Charity Trustees [1990] 2 EGLR 75
Seitler’s leading practitioners
Mark Barrett, Lawson Lewis Blakers
Helena Davies, DWF
William Lawrence, WH Lawrence
Paul Marco, Trowers & Hamlins
Jan Mugerwa, Olephant Solicitors
Catriona Smith, Penningtons Manches LLP
Useful resources
Woodfall: Landlord and Tenant 22.105 – 22.118 (Sweet and Maxwell)
Hill and Redman’s Law of Landlord and Tenant 2[B][76] (Butterworths)
Reynolds and Clark Renewal of Business Tenancies 4th ed with 1st Supplement (Sweet & Maxwell)
Jacqui Joyce Business Tenancies: A Practical Guide to the Changes to the Landlord and Tenants Act 1954 Pt II (Legalease)
Philip Freedman, Eric Shapiro & Kevin Steele Business Lease Renewals: The New Law and Practice (Routledge)
Gary Webber & Daniel Dovar Business Premises: Possession and Lease Renewal (Sweet & Maxwell)
