PP 2012/59

The Landlord and Tenant Act 1954 recognises that landlords may be leaseholders themselves and anticipates the potential problems that this might cause. If the landlord’s interest is due to expire in the near future, there would be little point in requiring him to grant a new tenancy. Therefore, the legislation disregards such landlords for the purposes of the renewal process and substitutes the “competent landlord” instead. A competent landlord must have a freehold interest or a superior leasehold interest with at least 14 months left to run. Special rules apply where the residue of the immediate landlord’s lease is shorter than this, but where the landlord is itself a business tenant whose tenancy has not been terminated under the Act: section 44(1). The Court of Appeal has just considered the application of these rules in the context of a contested renewal where the immediate landlord opposed the grant of a new lease to its sub-tenant because it wanted to occupy the premises to carry on business there itself: section 30(1)(g). The court was not referred to any previous authorities on the point that it was asked to consider and its decision will have important implications for landlords and tenants in similar circumstances: Frozen Value Ltd v Heron Foods Ltd [2012] EWCA Civ 473. The immediate landlord acquired its lease on 7 June 2005. The lease was due to expire on 17 July 2010 and was subject to a sublease that was due to expire on 14 July 2010. The sub-tenant served a request for a new lease on the freeholder, who was now the competent landlord, in January 2010. The request galvanised the immediate landlord into action. It entered into a new lease with the freeholder in February 2010, in order to reacquire the status of the competent landlord, and served a counternotice on the sub-tenant opposing the renewal of the sublease because it wanted to carry on business from the premises itself. The sub-tenant argued successfully that the immediate landlord was not entitled to rely on ground (g) because the legislation bars landlords from doing so if their own interest was purchased or created within the previous five years, subject to the business tenancy.  The “five-year rule” was enacted to prevent landlords from buying up the tail end of leases and depriving sitting tenants of security of tenure after a short association with the premises – but creates a balance by allowing landlords for more than five years to obtain possession if they intend to use the premises themselves.  The courts have previously accepted that the landlord’s interest may stem from successive leases on the ground that it would be absurd to deprive landlords with a long association with premises of the right to occupy them simply because they extended their lease during the previous five years. However, Heron Foods establishes that a succession of interests will not qualify unless the immediate landlord was also the competent landlord at all times. Landlords who plan to rely on ground (g) should take careful note and would be well-advised to protect their interests by renewing their leases, or buying the reversion, while their own interest still has more than 14 months to run. Landlords who are not alert to this, or who are unable to acquire the reversion in time, will not be entitled to rely on ground (g) until five years have elapsed following the grant of a new lease or the acquisition of the reversion. Allyson ColbyProperty Law Consultant