Landlord’s refusal to renew commercial lease based on substantial breaches under the lease

The Landlord and Tenant Act 1954 PT: II prescribes seven statutory grounds which entitle a landlord of a commercial property who has granted a commercial lease within the 1954 Act to refuse tenant’s application to renew the lease. In summary, the grounds of opposition are as follows:

1. tenant’s failure to carry out repairing obligations;
2. tenant’s persistent delay in paying rent.
3. tenant’s substantial breaches of other obligations under the current tenancy, or for any other reason connected with the tenant’s use or management of the holding;
4. suitable alternative accommodation is available for the tenant;
5. on sub-letting of part, the landlord requires the whole property for subsequent letting;
6. the landlord intends to demolish or reconstruct the premises;
7. the landlord intends to occupy the premises.

Some of these grounds, namely (a), (b), (c) and (e) are subject to the court’s discretion and the remaining grounds (d), (f) and (g) are mandatory, meaning that if a landlord establishes the mandatory grounds the court must refuse to renew the tenancy.

The majority of cases relating to the discretionary grounds under the Act are with respect to grounds (a) and (b) and it is with respect to these grounds that landlords are usually successful in their refusal to renew a commercial lease / tenancy. Ground (c) is usually invoked in respect of the management of the property. So, for example, where the tenant’s use of the premises was in breach of planning enforcement notice, it was held that the Landlord was justified in refusing to renew the tenancy.

However, In the recent case of Zoe Youssefi v Joan Mussellwhite (2014), the court held in favour of the Landlord in its refusal to renew the commercial lease / tenancy based on ground (c) and substantial breaches of other obligations under the tenancy. What counts as ‘substantial’ is a question of fact in each case which will be established by the court.

In this case, the Tenant’s persistent refusal to allow access to the Landlord to inspect the property (an explicit covenant under the lease) together with the fact that the Tenant’s failure to use the premises as a  shop in one of the designated classes (again another explicit covenant under the lease) were sufficient for the Landlord to rely on ground (c) in its refusal to renew the tenancy. What is interesting is this case, is the court’s decision to rule out some of the breaches of the tenant as non-substantial, hence, not qualified to be invoked by the landlord in its reliance on ground (c). Consequently, the court decided that although the presence of creeper growth on the rear external wall of the building was a breach of the implied obligation under the commercial lease, it was not a ‘substantial’ breach as the sum involved in carrying out the work to remove the creeper was only £350.

The implication of this recent case for the Landlord is that they may be entitled to refuse the renewal of the commercial lease / tenancy if there are significant breaches under the lease apart from delay in payment of rent and tenant’s breaches of repairing covenants. The question of whether the breaches are substantial is a question of fact which will be decided by the court. The implication for the tenant is to ensure that they are not in breach of the terms of the commercial lease before they apply to the Landlord to renew their tenancy.

For more information, please contact our expert Landlord & Tenant team on leasehold@bishopandsewell.co.uk or call 020 7631 4141.