Resisting Opposition to a Business Lease Renewal: Richard Hough v Greathall Limited 2015

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Summary: It can be most difficult for a tenant to resist a landlord’s opposition to renewal of its business lease at trial. This remains the relevant date for the landlord to prove its intention to redevelop, if opposing on that ground.

It can be most difficult for a tenant to resist a landlord’s opposition to renewal of its business lease at trial. This remains the relevant date for the landlord to prove its intention to redevelop, if opposing on that ground.

It is rare for lease renewal cases to reach court at all, let alone to reach the Court of Appeal.

There is good reason for this.

A landlord may oppose a tenant’s renewal of its business lease on one of seven grounds. Taking ground f as an example, in order to successfully oppose renewal a landlord must establish that it intends to demolish or reconstruct, or to carry out substantial work of construction to, all or part of the premises. Further, that it could not reasonably do so without obtaining possession.

In many cases, the evidence of the landlord’s intention to redevelop is overwhelming, with planning approval; finances in place; board resolutions; and contractors a few months short of spades in the ground. When faced with this and the prospect of statutory compensation, a tenant is well advised to avoid ongoing legal costs and reach a settlement with the landlord that does not prejudice its own requirements.

Resisting The Incentive to Settle

Some might say that it takes genius or insanity to run a case to trial in those circumstances. From time to time, a tenant so minded may drive developers and advisers, likewise, to question their own sanity.

A few eyebrows may have been raised for a different reason when, faced with a clear intention to redevelop, Mr Hough appealed to the Court of Appeal against refusal to renew his tenancy (Richard Hough v Greathall Limited 2015).

Mr Hough argued a technical legal point, which may well have made those in the development industry rather anxious. Before the relevant legislation was changed, with effect from 1 April 2004, a landlord was required to state whether it “would oppose” a tenant’s application for a new tenancy. Under the current legislation, a landlord is required to state that it “is opposed” to such grant. While case law from 1959 makes clear that the relevant date at which the landlord must demonstrate its intention is the date of trial, Mr Hough argued that the legislative revision overturned this. The landlord must be able to demonstrate its intention at the date of service of its notice.

Insofar as a change in the law of lease renewal could ever be astronomical, this change would be it. Landlords who want to develop can currently plan a date by which they need vacant possession; serve notice and issue proceedings in good time to achieve that, even if the case were to be tried; and proceed safe in the knowledge that it need not have all of the necessary evidence in place, so long as it is confident that such evidence will be available before trial.

If it were necessary for a landlord to have all of its evidence in place before service of a notice, the costs consequences could be enormous. Either, a landlord would need to press on with its redevelopment plans – in order to gather evidence of its intention – several years before any vacant possession was obtained allowing, only then, the development to proceed. Or, the landlord would find itself unable to legitimately oppose renewal in the relevant timeframe and its redevelopment would be held ransom by tenants with automatic rights to new leases.

Cause for Concern?

The Court of Appeal unanimously decided that the relevant date to prove intention was the date of trial. Sighs of relief were no doubt breathed in the development camp.

It is interesting, though, that the judge in the lower court considered himself bound by case law but, in fact, found Mr Hough’s argument persuasive.

The Court of Appeal, on the other hand, did not entertain this approach. It found that the purpose of the legislation amendment was not to change the relevant date, and to order so would be to extend the legislation beyond the intention of Parliament. Further, the court could see no practical reason for bringing forward the date of intention.

The Current Position

There is no indication as to whether Mr Hough intends to appeal the point further.

In the interim, developer landlords can continue to oppose renewals, without bringing forward the pre-development timetable to accommodate the need to do so.

This certainly seems to be the common sense approach.

http://www.bailii.org/ew/cases/EWCA/Civ/2015/23.html

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