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A recent decision between a Hotel Landlord and a Textiles Dealership Tenant has woven a new thread to long-established tests regarding redevelopments.

Section 30 of the Landlord and Tenant Act 1954 (“the 1954 Act”) details the various grounds on which a Landlord is entitled to oppose a Tenant’s application for the renewal of a commercial lease.

To avoid binding themselves in an undesirable new tenancy with a Tenant, Landlords must carefully consider their strategy for opposing the Tenant’s application for a new tenancy, as omitting one could be fatal to the dispute, and pursuing one without merit could be costly.

One of the grounds, section 30(1)(f) of the 1954 Act, specifies that a Landlord may oppose an application for a new tenancy 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 and that he could not reasonably do so without obtaining possession of the holding.”

Simply, the Landlord must demonstrate that the Tenant’s continued occupation would frustrate the ability of the Landlord’s intention to re-develop.

Historically, if Landlords were opposing a Tenant’s application for a new tenancy under ground 30(1)(f), they would seek to rely on the decision in Fisher v Taylors Furnishing Stores Ltd [1956] 2 QB 78, which held that Landlords only needed to persuade the Court that their intention to carry out the works was genuine, without regard for their motivations for performing the works.

redevelopments

The test centred around whether or not there was a firm and settled intention, a reasonable prospect of achieving that intention (Cunliffe v Goodman [1950 2 K.B. 237] – a case pre-dating the 1954 Act), and ‘genuineness’ on the part of the Landlord, often being demonstrated through a willingness to provide undertakings to the Court as to the commencement of the works.

The decision in Fisher also prescribed that in cases where the Landlord had a ‘change of mind’ and elected to not carry out the works, there would be no legal remedy for the former Tenant to set its new tenancy. However, it is worth noting that a landlord may have had to remunerate the tenant for the non-renewal with statutory compensation, so arguably not a ‘free’ resolution even when not incurring the costs of redevelopment.

In SR Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62, the Tenant (a textile dealership and consultancy based in Jermyn Street) served the Landlord with a notice to grant a new tenancy which the Landlord decided to oppose on the ground that they were intending to carry out several redevelopment projects (ground 30(1)(f)).

However, it later emerged, through admission by the Landlord, that the only purpose for undertaking the redevelopment project was in order to satisfy one of the seven grounds at section 30(1) of the LTA 1954 and in turn avoid the obligation to grant a new lease – the estimated costs to the Landlord was £776,707 for the works, and £324,000 in statutory compensation.

It was initially held that the Landlord had a genuine intention to carry out the proposed redevelopment works, and the fact that the works were only being undertaken as a means to end the current tenancy was irrelevant.

Notwithstanding this, the tenant appealed to the Supreme Court where the test for measuring a Landlord’s “genuineness” became subject to scrutiny.  The focus of the appeal concerned the unconditional ‘intent’ of the Landlord to perform the works; the motive of the landlord and the reasonableness of the scheme remained unchallenged – although it was acknowledged they may be useful indicators when assessing intent.

The Supreme Court found in favour of the Tenant: to satisfy this test, the intention to re-develop must exist independently to, and not be conditional upon, the question of whether a Tenant would seek a lease renewal or not.

Marrying the subjective nature of this new conditionality test with the long-established objectivity of ground 30(1)(f) may at first blush be difficult, particularly in circumstances where the Landlord was willing, even if the works did not progress, to pay statutory compensation to the Tenant in excess of £300,000.  What does unerringly resonate however, is the protection that the 1954 Act was designed to provide to Tenants and the importance for Landlords to ensure that any leases they require to be ‘contracted out’ of the renewal provision of the Act are done so properly, and in compliance with the formal procedures.

Commercial lease renewal disputes can quickly become expensive and complex, and the merits of either party’s case may become subject to change at any stage; this case does not alter the 1959 Betty’s Cafes rule that intention comes to be assessed at the time of the hearing, not of the notice, but it highlights the cautious approach Landlords must adopt before pursuing any grounds of resistance.

In addition to compliance with the relevant statutory and common law principles, landlords should also be aware of the deadlines involved with commercial lease renewals; the potential commercial advantages to initiating the renewal process to benefit from a rising open market rent; and potential liabilities in compensating tenants after successfully opposing an application for a new tenancy.

Bishop & Sewell LLP are specialists in the Landlord & Tenant sector, taking instructions on commercial, residential and mixed-use tenancies, on behalf of both landlords and tenants.

If you need Litigation or Dispute Resolution advice (Commercial or Personal), please contact our expert team on litigation@bishopandsewell.co.uk or call 020 7631 4141.


Category: Blog | Date: 21st Nov 2019


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