When a landlord opposes the renewal of a business tenancy on the ground that it intends to occupy the holding to carry on business itself, it must satisfy the court that it has a reasonable prospect of being able to do so.
Humber Oil Terminals Trustee Ltd v Associated British Ports [2011] EWHC 2043 (Ch); [2011] PLSCS 205 concerned the renewal of business leases at an oil terminal that the tenant took in order to service its oil refineries. When the tenancies expired, the landlord opposed the tenant’s application for renewal on the ground that it intended to assume operational control of the terminal to make it available to additional customers.
The tenant claimed that the landlord was trying to expropriate its business. It suggested that the landlord’s proposals were not commercially viable. It pointed to the logistical and other hurdles that the landlord would have to overcome – not least because it would be entitled to remove its own pipelines and infrastructure (which would cost £60m and take two years to replace).
It argued that the landlord should be required to prove that it had a reasonable prospect of carrying out its intentions independently of the bargaining position that it would acquire were it to win its case. Instead, the landlord was asking the court to assume that the tenant would enter into a new commercial relationship with the landlord if it was unable to renew its leases – and was relying on that assumption to establish that it had a reasonable prospect of achieving its aims, even though the tenant was unwilling to contract with the landlord unless the leases were renewed.
The judge accepted that the court has to be careful when speculating about what may happen in the future. However, he decided that it was likely that the tenant would be guided by commercial reality and would, on the termination of the leases, reach a commercial arrangement to enable it to continue using the terminal to service its oil refineries.
The tenant suspected that the landlord would accept a higher offer for new leases. It argued that this showed that the landlord did not have a firm and settled intention to occupy the premises. The judge accepted that the landlord would consider a higher offer, but ruled that this did not negate its present – and resolute – intention to carry on its own business from the premises, even though it might take time to put in place the necessary arrangements to do so.
The suggestion that the landlord’s plans were aspirational or embryonic might be relevant if it was impecunious or insubstantial. However, the landlord was a major port operator with substantial financial backing. Consequently, the judge accepted that it would be able to carry out its intentions without the co-operation from the tenant. He did not have to decide how successful or economically viable the new business would be. It was sufficient that the landlord had decided to establish its own business and had a reasonable prospect of achieving its aim.
This fascinating struggle is far from over. Watch out for further proceedings in the Court of Appeal focussing on the lawfulness of the landlord’s actions as a matter of competition law.
Allyson Colby property law consultant
