A recent Supreme Court ruling on the renewal of commercial leases is notable for all landlords. Eleanor Longworth analyses the decision.
The ruling relates to the Landlord and Tenant Act (LTA) 1954, which enables landlords to obtain vacant possession of their premises by opposing the renewal of a lease on expiry, on certain statutory grounds.
The Supreme Court’s decision means landlords should pay careful consideration to whether they can establish a genuine intention, when using intention to redevelop a property to refuse a new lease.
What the law says about refusing a new lease
To terminate a lease, protected by the LTA, when it expires the landlord must serve notice and give one or more of seven reasons under section 30 of the LTA.
These grounds are: A – breach of repairing covenant; B – persistent delay in paying rent; C – breaches of other obligations; D – availability of alternative accommodation; E – subletting of part and possession required by the landlord; F – the landlord intends to demolish or reconstruct; and/or G – the landlord intends to occupy the premises.
The nub of the Supreme Court case
The Supreme Court judgment related to the case of S Franses Ltd v The Cavendish Hotel (London) Ltd. The Cavendish, being the landlord, had opposed the renewal of Franses’ business lease using ground F of the LTA – ie, that the landlord wanted to redevelop the property.
The landlord admitted that the works, costing more than £770,000 had been devised solely to obtain vacant possession of the premises, that they would not be undertaken if the tenant left and that if the court ruled against it, the works would not be carried out at all.
At first instance the Judge did not order a new tenancy however, said that the works were designed with an intention that would lead to the eviction of the tenant, regardless of the works’ commercial or practical utility.
The case ultimately went to the Supreme Court on appeal. The question it was asked to determine 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.
The Supreme Court held that the test was whether the landlord would do the same works if the tenant left voluntarily. Applying this test, the Supreme Court declared that the landlord did not intend to carry out the works.
It further held that, where the landlord was relying on section 30(1)(f) of the LTA 1954 to oppose the tenant’s application for a renewal lease, the landlord’s motive or purpose may be investigated at trial as evidence for the genuineness of his professed intention to carry out the works.
It did not consider that the landlord had a genuine intention to carry out the works and in light of this the tenant was entitled to a renewal lease.
What this case means for landlords
The upshot of this case is that landlords should carefully consider whether they can genuinely satisfy the Supreme Court’s definition of an intention to redevelop the premises. The question they must answer whether they would actually carry out the works if the tenant departed voluntarily.
Significant preparatory work to demonstrate this intention may be necessary ahead of the hearing, for example, collating board minutes, obtaining planning permission, and evidence of funding arrangements.
In addition, expert evidence on possible alternative schemes for carrying out works will probably be advisable. Thought should also be given to producing a firm undertaking to complete the works.
If you would like to discuss landlord and tenant matters further, contact Eleanor Longworth at our Bury office on 0161 761 4611
