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Commercial Lease Renewal

A landlord’s opposition to a commercial lease renewal – the death of contrived schemes of works?

The Supreme Court has recently considered whether a landlord can succeed under section 30(1)(f) of the Landlord and Tenant Act 1954 (LTA 1954) where its proposed scheme of works was devised to comply with that ground.

 

Susan Harrison, Commercial Property Associate based at our Chichester, West Sussex, office, has produced this article to advise clients on a recent court case surrounding Commercial Lease Renewals. Contact Susan Harrison or a member of our Commercial Property Team if you require further legal advise.

 

Background

A tenant of a business lease has a statutory right to a lease renewal at the end of the contractual term. A landlord can oppose the tenant's statutory right to a lease renewal on any of the grounds set out in section 30(1) of the LTA 1954.

Section 30(1)(f) (Ground (f)) of the LTA 1954 states that the landlord can oppose a lease renewal if:

”... 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 that he could not reasonably do so without obtaining possession of the holding.”

Reliance on Ground (f) has been tested in the courts on previous occasions and the courts have required that the landlord must do more than merely state that it will demolish or reconstruct the premises. The intention must have moved “out of the zone of contemplation” and into “the valley of decision” (Cunliffe v Goodman [1950] 2 KB 237).

The landlord must show both:

A firm and settled intention.

A reasonable prospect of achieving that intention.

The landlord’s motive in opposing the lease renewal on Ground (f) is irrelevant provided that the landlord has a genuine intention to carry out the works (Fisher v Taylor’s Furnishing Stores Ltd [1956] 2 WLR 985).

 

The case of  S Franses Ltd v The Cavendish Hotel (London) Ltd (2018)

In this instance, the tenant occupied part of the building at 80 Jermyn Street in London. The remainder of the building was occupied and managed by the landlord.

In March 2015, the tenant served notice under section 26 of the LTA 1954 requesting the grant of a new tenancy. In May 2015, the landlord served counter-notice opposing the renewal on the basis of Ground (f). Proceedings were instituted in the Central London County Court.

The landlord’s defence produced a scheme of works it intended to carry out. It was common ground that the proposed works had no practical utility. Although planning permission was not required for the revised works, it would be impossible to make any use of them without planning permission for change of use, which the landlord did not intend to seek. The sole purpose of the works was to obtain vacant possession. As the landlord’s principal witness put it, the scheme was “designed purely for the purpose of satisfying Ground (f)”.

 

The County Court dismissed the tenant’s claim under the LTA 1954 for a new tenancy. The County Court concluded that the landlord’s intention to carry out the works at the date of the hearing was firm, settled and unconditional, so that the landlord had made out its ground of opposition under Ground (f). The High Court agreed with the County Court and held that the landlord had established sufficient intention to carry out works where the landlord had resolved to undertake works to comply with Ground (f) and obtain vacant possession, rather than for independent commercial reasons. However, the High Court gave permission to allow the tenant to appeal directly to the Supreme Court.

The question which arose for the Supreme Court was whether a landlord can oppose the grant of a new tenancy if the works which it says it intends to do have no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.

On the facts, the landlord did not intend (within the meaning of Ground (f)) to carry out the works specified in the scheme of works that it was relying upon, in opposition to the tenant’s application for a new tenancy. The Supreme Court unanimously allowed the tenant’s appeal.

The facts in this case were unusual in that the landlord had been honest enough to admit what would usually be inferred, that is, that the landlord’s intention to carry out the works was conditional and that the works would not have been carried out, if the tenant had left voluntarily.

This Supreme Court decision makes it clear that landlords will no longer be able to rely on contrived schemes serving no useful or commercial purpose being within the scope of Ground (f) and provides important guidance about how to assess the meaning of landlord’s intention for the purposes of Ground (f), indicating that the acid test to consider is whether the landlord would intend to do the same works if the tenant left voluntarily.

Whilst tenants may welcome the decision on the grounds that it may improve their bargaining position on a lease renewal, it may ultimately result in landlords offering more contracted out tenancies, to ensure possession at the end of the term.

S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62