Landlord and tenant – Business tenancy – Renewal – Claimant tenant seeking new leases of business premises – Defendant landlords opposing grant of new tenancies under section 30(1)(b) and (f) of Landlord and Tenant Act 1954 – Whether claimant’s cross-claims against defendants taking effect as equitable set-off – Whether claimants persistently delaying payment of rent – Whether defendants establishing intention to demolish or reconstruct property – Claim dismissed
The claimant tenant held leases of the ground floors of 139, 143 and 145 Homerton High Street, E9 (the property). The defendant landlords served notices under section 25 of the Landlord and Tenant Act 1954 terminating the leases on 30 September 2020. The notices specified that any claim for new leases would be opposed under section 30(1)(b) of the 1954 Act (a persistent delay in paying rent) and, in respect of 143 and 145 only, 30(1)(f) (the landlord intended to demolish or reconstruct the property and it was not possible to do so without the landlord recovering possession). The claimant brought a claim seeking new leases.
The claimant accepted that, save for a single payment in August 2020, no rent had been paid since August 2019, and that there were arrears of rent under all three of the leases. The failure to pay rent from 26 March 2020 was to be disregarded under section 82(11) of the Coronavirus Act 2020.
The claimant argued it had cross-claims against the defendants for amounts exceeding the outstanding arrears of rent, which took effect as an equitable set-off and any notice based on rent being due was ineffective. As it had a right of set off, the rent had not “become due” for the purposes of section 30(1)(b) of the 1954 Act.
Further section 30(1)(f) was not made out because there was no real prospect of the defendants obtaining planning permission for the redevelopment so that the objective element of section 30(1)(f) was not satisfied.
Held: The claim was dismissed.
(1) Under section 30(1)(b), the court had to determine first whether there had been a persistent delay in paying rent; and secondly whether, in the exercise of the court’s discretion, a new lease should not be granted.
An equitable right to set-off arose where a cross-claim was so closely connected with the claim that it would be manifestly unjust to allow the claimant to recover without taking into account the cross-claim. The existence of a cross-claim did not mean that rent was not due in the first place. The proper analysis was that the rent was due, but a cross-claim acted as a defence.
The test contained both a formal element and a functional element. The importance of the formal element was to ensure that the doctrine of equitable set-off was based on principle and not discretion. The importance of the functional element was to remind litigants and courts that the ultimate rationality of the regime was equity. The two elements could not ultimately be divorced from each other. Thus, there was a single test with two elements. The formal element was whether there was a close connection between the claim and the cross-claim, and the functional element was whether it was unjust to enforce the claim without taking into account the cross-claim: Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667; [2010] PLSCS 161 and The Kanteen Ltd v Three Rivers Property Investments Ltd [2021] EWHC 1787 followed.
In the present case, none of the claims were sufficiently connected to the rent payable on the properties or to the landlord and tenant relationship to give rise to an equitable set-off.
But even if there had been an equitable set-off, the rent would still be “due” under the lease: Secretary of State for Defence v Spencer [2019] EWHC 1526 (Ch); [2019] EGLR 38 distinguished.
(2) Under section 30(1)(f), the question was whether the defendants had established, at the date of the hearing, the requisite intention to demolish or reconstruct the premises. The question of intention was one of fact which involved a decision of the landlord to bring about a certain state of affairs. That decision might not be tentative or indefinite, but had to be a firm and settled intention (the subjective element).
There was also an objective element. One could not intend a result wholly beyond the control of one’s will but that was really no more than an expression of the fact that, in order for an intention to be rationally held, it had to be capable of achievement. Whilst an intention might be thwarted by circumstance but be an intention nonetheless, an intention to bring about a state of affairs had to be rooted in reality: Cunliffe v Godman, [1950] 2 KB 237 and Macey v Pizza Express [2021] EWHC 2847 (Ch); [2021] PLSCS 182 applied.
The language of intention could not be treated as having, in effect, substituted for the word ‘intends’ in section 30(1)(f) the words “is ready and able” so as to impose upon the landlord the onus of proving that, at the proper date, he had not only finally determined upon the course proposed but had also taken all necessary steps for the satisfaction of any requisite conditions to which the course proposed was subject. The question whether the intention was at the relevant date proved had to be answered by the ordinary standards of common sense.
(3) A firm and settled intention under section 30(1)(f) would not be sufficient where that intention was conditional. If a landlord had, say, a firm and settled intention to demolish the building the subject of a lease, but only so as to ensure the termination of the lease, such that if the tenant surrendered the lease, the demolition would not proceed, then such an intention, albeit firm and settled, would not satisfy the demands of section 30(1) of the 1954 because it was conditional: S Franses Ltd v Cavendish Hotel (London) Ltd [2018] UKSC 62; [2019] EGLR 4 applied.
The date at which the landlord had to hold the requisite intention was the date of the hearing and, in the present case, the court preferred the evidence of the defendant’s expert which was more balanced and independent. It was plain that the defendants had expended time, energy and money on their proposal. The prospects of getting approval were good, or very good, and the defendants had established the requisite intention under section 30(1)(f).
Looking at the position as a whole, it was clear that the defendants’ grounds of opposition under grounds (b) and (f) succeeded.
Edward Knight and Owen Curry (instructed by Lawrence Stephens Solicitors) appeared for the claimant; Nathaniel Duckworth (instructed by Colman Coyle) appeared for the defendants.
Eileen O’Grady, barrister
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