Can a Lease Renewal Be Defeated for Redevelopment Purposes?

When Can a Lease Renewal Be Defeated?

Part II of the Landlord and Tenant Act 1954 (“the Act”) gives business tenants an automatic right of renewal (known as “security of tenure”) at the end of their lease (provided that the lease has not been specifically “contracted out” of the Act). There are limited grounds available to landlords who wish to defeat such a renewal. Section 24(1) of the Act outlines the procedure available to landlords who wish to contest the grant of a new tenancy, with the various grounds for opposition being laid out in section 30 of the Act. Broadly speaking, the grounds are:

  1. That the tenant has failed to comply with their repair and maintenance covenants (i.e. obligations) under the lease;
  2. That the tenant has persistently paid their rent late;
  3. That the tenant has materially breached his obligations under the lease;
  4. That the landlord has offered and is willing to provide alternative accommodation for the tenant, the terms of the new tenancy are to be reasonable, and the alternative accommodation is suitable for the tenant’s requirements, having regard to the nature of his business;
  5. That where the lease was created by the sub-letting of part only of the property which is subject to a headlease, the landlord can demonstrate that if it were able to let the property as a whole, it would be more financially beneficial;
  6. That on termination of the lease, the landlord intends to demolish or reconstruct the premises (or a substantial part of them), or to carry out substantial work on the building (or part of it), and he could not reasonably do so without obtaining possession of the premises; and
  7. That the landlord intends to occupy the premises for the purpose (or partly for the purpose) as his own residence or as premises from which to run his own business.

On 5th December 2018 the Supreme Court heard the case of S Franses Ltd (Appellant) v The Cavendish Hotel (London) Ltd (Respondent) which concerned ground (f) above.

Background to the Case

The case concerned qualified security of tenure for the benefit of the concerned business tenants, pursuant to Part II of the Act. The ground for opposition in issue in S Frances Ltd v The Cavendish Hotel was that under section 30(1)(f) of the Act.

The premises in issue was a ground floor and basement in the St James’ area in London. The appellant tenant occupies the property under a 25-year underlease; the remainder of the building is occupied by the respondent landlord as a hotel. On 16th March 2015, the tenant requested the grant of a new tenancy by serving the correct notice. However, on 15th May 2015, the landlord served a counter notice on the tenant opposing the grant of a new tenancy, citing ground (f) as the reason. The tenant subsequently applied for a court order and the preliminary issue heard was whether the landlord had successfully made out ground (f).

Judgment

The County Court considered that the landlord genuinely intended to carry out the works he stated were to be carried out and that he had therefore successfully made out ground (f). On a subsequent appeal to the High Court, the judge agreed with the County Court judgment; however, the High Court gave permission for the appellant tenant to bring an appeal in the Supreme Court, bypassing the Court of Appeal.

The Supreme Court unanimously ruled that ground (f) could not be invoked. The Court considered that ground (f) requires a “firm and settled” intention to carry out the works. The landlord’s intention to carry out the works cannot be conditional on whether the tenant has chosen to assert his claim to a new lease. In this case, the tenant’s possession of the premises did not obstruct the landlord’s intended works. Furthermore, the landlord did not intend to carry out the works at all if the tenant was able to persuade the Court that the works could be carried out while he remained in possession of the premises. The sole purpose of the proposed works was to remove the tenant from the premises, and not to benefit the premises in any way.

Conclusion

A lease renewal can likely be defeated for redevelopment purposes if a landlord is successfully able to make out ground (f), as defined above (although each case is individual and success is dependent on the facts). However, in doing so, a landlord must demonstrate a firm, settled and genuine intention to demolish/reconstruct the premises, together with a reasonable prospect of giving effect to his intention. Amongst others, other factors to be considered are whether the work(s) to be carried out is sufficient to satisfy the ground, planning permission and financial viability.

Importance of Legal Advice

If you are a landlord or tenant, it is important to consider whether your lease will be contracted in or out of the security of tenure provisions prior to completion of your lease. If the lease is to be contracted inside the Act and ground (f) is later to be relied upon, it is important to consider the prospects of success to avoid hefty litigation costs. It is also important to be aware of the rightful amount of compensation you will be liable to pay/receive if ground (f) is successfully made out. It is for these reasons that we would thoroughly recommend receiving independent legal advice in relation to the drafting of your lease, service of notices, any attempts to defeat/defend a renewal, and compensation to be paid/received if a renewal is successfully defeated.

If you would like advice on an existing or new lease, please do not hesitate to contact our experienced Real Estate Team on 01702 338338 for a confidential discussion.