A brief refresher for those whose thoughts might have been focused on the High Court of Parliament in recent weeks, instead of the Supreme Court.
In S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62; [2018] PLSCS 212, the Supreme Court allowed the tenant’s appeal in a case where the landlord had succeeded with a ground of opposition to a new tenancy, on the footing that it intended to carry out substantial works of construction. (Readers will recall that the relevant test in section 30(1)(f) of the 1954 Act is “that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding…”).
The trial judge had found that the proposed scheme of works was designed with the material intention of undertaking works that would lead to the eviction of the tenant, regardless of the works’ commercial or practical utility and irrespective of the expense. It was common ground that the works had no practical utility; their sole purpose was to enable the landlord to obtain vacant possession. As a result, had the tenant left voluntarily, the landlord would not have carried out the works.
Although the court agreed that it was not for them to consider the landlord’s motive in assessing the necessary intention, they did consider that a conditional intention of the sort held by the landlord did not engage the statutory ground. The reason for this is that section 30(1)(f) presupposes that the landlord’s intention to do works must exist independently of the tenant’s claim for a new tenancy, so that the tenant’s right of occupation under a new lease would serve to obstruct it. In this case, there was no such independent intention: the landlord proposed to carry out the works purely in order to secure the vacation of the tenant. Summarising the point, Lord Sumption said: “The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily.”
Degrees of acidity
This acid test may have some interesting applications. Let us suppose that, during the passage of Franses up through the appeal system, another landlord, Wannabe Ltd, had devised a closely similar scheme of works to another set of premises, relying on the orthodox learning that, in order for landlords to assure themselves of success, they should make their schemes as substantial as possible, regardless of the commercial purpose to the works.
So, Wannabe provides for a scheme that involves the entire destruction of the subject matter of the premises (which, let us say for the sake of this example, is an internal skin demise). Thus, wall plaster is to be entirely stripped away back to the bare brick; floors are to be taken up; ceilings are to be removed; doors and windows are going; and services are all to be stripped out. Left to its own devices, Wannabe would have done none of this work, since the premises were only recently refurbished, and the finish would have been perfectly marketable had the tenant left voluntarily. However, Wannabe has a bad relationship with its tenant, and wants to be rid of them at all costs.
Wannabe is saved from defeat in court, because the decision in Franses is published before its claim gets to trial, and it chooses to cut its losses. Just as it is about to withdraw its ground of opposition, however, along comes Apocalypse Wear Ltd, which is looking to acquire a second set of premises from which to sell its Derelicte range of industrial chic menswear. Apocalypse’s premises style is dystopian: think World War Z meets The Book of Eli. As it happens, Wannabe’s scheme is ideal, because it will create exactly the stripped-out look that Apocalypse is after, although Apocalypse will add a few naked lightbulbs to enhance the atmosphere. Wannabe sells to Apocalypse, which simply adopts Wannabe’s ground of opposition, and the matter proceeds to court.
In court, the tenant of course attacks the scheme, on the footing that it is just a stunt to get rid of him. That tactic would have worked against Wannabe, but it fails against Apocalypse, for the simple reason that Apocalypse would do the scheme even if the tenant left; it passes Lord Sumption’s acid test, because that is what Apocalypse really, really wants. So, exactly the same scheme of works achieves entirely contrasting results in the hands of different landlords.
Lessons to be drawn
This example is not fanciful. Experience of any high street shows that different tenants have entirely different ideas for their retail experience – and although the work involved may often be part of a tenant’s fit-out, there is no reason why it could not be incorporated into a winning landlord’s scheme of works.
As the court drily pointed out in Franses, “more complex issues would arise” where the works are hybrid – that is to say, part of them are works that the landlord would want to carry out in any event; while others are works that the landlord has included purely to bolster its position (“spurious additional works added for the sole purpose of obtaining possession”).
Landlords will now need very careful advice concerning the purpose for which any works are being done. Tenants, conversely, will need similarly careful advice as to what may be open to challenge. Trials in the county court henceforth may well become significantly more contentious. Prospective landlords may well as a result seek to avoid the bother by insisting on business tenancies being contracted out of the security of tenure provisions of the 1954 Act.
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers
