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The road to Redevelopment is paved with Unconditional Intentions

Supreme Court rules a landlord’s intention to redevelop must be ‘unconditional’, if it is to bring a protected business tenancy to an end.

Background

The case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62 concerned a tenant occupying business premises (selling antique carpets and rugs), in accordance with the terms of a lease protected by the Landlord and Tenant Act 1954 (“Act”).

The Act affords security of tenure to business tenants (where not expressly excluded), enabling them to automatic renewal of their lease upon expiry of the lease term, unless the landlord can satisfy one of the statutory grounds of opposition in accordance with section 30 of the Act.

In S Franses, the tenant had made a request for a new tenancy pursuant to section 26 of the Act. In response, the landlord had served a counter-notice opposing the grant of a new tenancy – saying it intended to redevelop the premises and could not do so whilst the tenant remained in occupation (known as ‘ground (f)’ under the Act). Shortly afterwards, the tenant issued its application at Court for the grant of a new tenancy.

Landlord’s intention to redevelop

In order to satisfy ground (f) refuting the tenant’s right to a new tenancy, the landlord must show that its intention to redevelop the premises is “firm and settled”, by the time the matter gets to trial.

A landlord’s ‘motivation’ for redevelopment was not a relevant factor to be taken into consideration. A landlord simply had to show that it intended the works. The result of which was, so long as the landlord could conjure up some sort of development scheme and show, by the time the matter got to trial, that it intended to do the works, then it would successfully defeat the tenant’s application.

The proceedings in the lower courts

The landlord put forwards no less than three redevelopment schemes, abandoning the first because planning, it was suggested, would be refused. It was common ground between the parties that the landlord’s preferred scheme of works had no practical utility. The cost of the scheme of works was estimated by the landlord to be £776,707 excluding VAT.

Rather surprisingly in S Franses, the landlord said that its only motivation for carrying out the works was to obtain possession of the premises. The landlord submitted that “the works are thoroughly intended because they are a way of obtaining possession. That is all there is to it”. If the tenant left the premises of its own volition, the landlord had said it had no intention of carrying out the works.

Since motivation was irrelevant and the landlord did in fact have an intention to redevelop, the landlord was confident that it was ‘check-mate’ for the tenant. The County Court agreed.

The tenant appealed, and the matter was sent to the High Court for consideration. Again, the landlord was successful, but permission to appeal was granted and the High Court leapfrogged the case to the Supreme Court.

Decision of the Supreme Court

The tenant appealed on two grounds: (1) Parliament’s purpose for ground (f) was that the landlord’s works must have some commercial purpose; and (2) the landlord’s intention for the works must be unconditional, i.e. the landlord would carry out the works regardless of whether or not it can obtain the premises by other means, such as the tenant leaving of its own accord.

The Supreme Court said: “Section 30(1)(f) of the Act assumes that the landlord’s intention to demolish or reconstruct the premises is being obstructed by the tenant’s occupation.”

The commercial reality in the particular circumstance was that the landlord was proposing simply to spend a sum of money to obtain vacant possession. On that proposition, no overriding interest of the landlord was being served which section 30 could protect.

The tenant was successful, with the Supreme Court deciding: The landlord’s intention to redevelop must exist independently of the tenant’s claim to a new tenancy. The test being whether or not the landlord would intend the same works if the tenant left voluntarily.

Judgment was given on 5 December 2018.

How we can help

Commercial landlords will need to be prepared to prove that they intend their demolition and/or redevelopment, irrespective of what the tenant is planning on doing regarding its occupation. Commercial tenants on the other hand, will want to press their landlord for ‘proof of the pudding’, if their landlord decides to oppose the tenant’s statutory right to renewal.

Lucie Barnes is a property litigation specialist at Baines Wilson LLP.

If you would like to discuss any issue regarding lease renewals or terminations, we would be happy to speak with you. Please contact us on: 01228 552600 or  l.barnes@baineswilson.co.uk

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