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Landlord’s motive matters: Supreme Court rules in favour of tenant in opposed business lease renewal

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Summary: The Supreme Court has ruled that, in order to oppose a new business tenancy on the grounds of redevelopment, the landlord cannot rely on works which it intends to carry out having no purpose other than to get rid of the tenant. The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily. In other words, the days of landlords contriving redevelopment schemes purely to get rid of tenants are gone.

Facts

There has been much hype about the case of S’Franses v Cavendish Hotel (London) Ltd, concerning a retail unit at 80 Jermyn Street in St James’s, London, used as a gallery for the display of antique tapestries and textile art.

The tenant occupies part of the ground floor and basement, and the rest of the building is occupied and managed by the landlord as a luxury hotel.

As the tenant’s lease was approaching contractual expiry, it served notice on its landlord requesting a new lease under the Landlord and Tenant Act 1954 (the Act). The landlord opposed the grant of a new lease and sought possession of the unit on one of the permitted grounds under s 30(1) of the Act, namely that it intended to demolish or reconstruct the unit on the termination of the current tenancy (“ground (f)”).

Court proceedings ensued, as did a number of revisions to the landlord’s proposed scheme of works.   What became clear was that the landlord had contrived a scheme of works purely for the purpose of establishing ground (f), in order to avoid having to grant a new lease to the tenant. 

At first instance and on appeal, the Court accepted that the landlord’s proposed scheme was factitious and, rather unusually, the landlord indicated candidly during cross examination that if the tenant left voluntarily, or if the court ruled against the landlord on ground (f), the landlord might not undertake the works at all.  Nevertheless, in order to make out its ground of opposition and successfully oppose a new lease, the landlord provided an undertaking to the court that it would carry out the entirety of the works if the court ruled in its favour.

The issue

The tenant felt aggrieved.  The Act was introduced to help business tenants – to entitle them to a new lease of business premises, and imposes a high evidential threshold on landlords who wish to oppose new leases.  However, a landlord’s motive for opposing a lease renewal is not relevant for the purpose of establishing ground (f).  Landlords have therefore been able to devise schemes that would meet the evidential criteria to successfully oppose a new lease, even if their motive for carrying out the works was purely to get rid of their tenant. 

But this case was slightly different. The evidence showed that, although the the works proposed by the Cavendish hotel were relatively expensive and extensive, in fact they served no commercial purpose; they had no utility.  Further, the landlord’s intention to actually carry out the works was, by the landlord’s own admission, conditional on the tenant vacating the premises and/or the court ruling in its favour – it was clear that the landlord did not necessarily intend to carry out the scheme of works. 

The Supreme Court therefore took on the case in order to interpret the Act, in particular whether the utility of a landlord’s scheme of works and the motivation behind the scheme, is relevant to question of whether a landlord has the requisite intention to establish ground (f) and successfully oppose a new tenancy.

The ruling

In a unanimous decision the Supreme Court allowed the tenant’s appeal and found that the landlord does not intend, within the meaning of ground (f), to carry out the works specified in the scheme it relied upon in opposition of the tenant’s application for a new tenancy.

Lord Sumption, in the leading judgment, held that the landlord’s intention in this case was conditional upon whether the tenant decided to leave voluntarily.  It was not the ‘fixed and settled intention that ground (f) requires’. Ground (f) assumes that the landlord’s intention to demolish or reconstruct the property is obstructed by the tenant’s occupation. It follows that the landlord’s intention cannot be conditional on whether the tenant chooses to assert his claim to a new tenancy. The acid test is whether the landlord would intend to do the ‘same works if the tenant left voluntarily’.

This is a change to intention as we know it under the 1954 Act. Lord Sumption acknowledges that the decision in Franses is a divergence from how intention has been dealt with normally.

However, Lord Briggs, giving a concurring judgment, is clear that the timing point for intention remains unchanged. What is key is that intention must not be conditional.

The Act is there to protect tenants. Whilst section 30 provides for legitimate reasons for the landlord to regain possession, obtaining vacant possession is not one of the specified grounds, and ground (f) should not be “abused” just in order to obtain vacant possession. This is the key reasoning to the decision.

Lord Briggs recognised that a landlord may have alternative intentions, each minuted by its board as to (i) works to be done if tenant vacates the property voluntarily and (ii) works to be done if tenant makes an application for a new lease.

What is clear from the decision is that the usual landlord’s undertaking to court is not the reliable litmus test for genuine intention that courts have treated it to be previously.

Counsel for the landlord raised the point that an effect of the judgment will be that landlords will disguise their intentions more effectively than the Cavendish Hotel did!


Implications of the Supreme Court ruling

This is a stark ruling for a stark case.  The landlord wanted possession no matter what.  Traditionally, the landlord’s undertaking to perform the works would win the case.  Not anymore.  Specialist advice at the outset is needed by landlords as never before.

If you would like to discuss how this ruling impacts your lease, please contact Roger.Cohen@bclplaw.com or Rebecca.Campbell@bclplaw.com.

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