Landlord must have Genuine Intention to Redevelop Premises to Obtain Vacant Possession

December 20, 2018

The UK Supreme Court recently concluded in S Frances Limited v The Cavendish Hotel (London) Limited that a landlord’s intention to demolish, reconstruct or develop their premises (“the redevelopment ground”), when opposing a secure tenant’s application for lease renewal under the Landlord and Tenant Act 1954 (“the 1954 Act”), must be a genuine intention if its opposition to a lease renewal is to succeed.

Background

S Frances Limited (“the Tenant”) is a textile dealership occupying premises on the ground floor and basement of the Cavendish Hotel in Westminster, London. The Tenant benefits from security of tenure under the 1954 Act therefore having a statutory right to renew their lease. The Tenant served a notice on The Cavendish Hotel (London) Limited (“the Landlord”) requesting a new lease. The Landlord resisted renewal by serving a counter notice on the basis it intended to carry out works, using the redevelopment ground under Section 30 (1)(f) of the 1954 Act, and that it could not do so without obtaining possession of the premises. This provision contains almost identical wording to Article 12 (1) (f) of the Business Tenancies (Northern Ireland) Order 1996 (“the Business Tenancies Order”). Article 12 is used by commercial landlords in Northern Ireland to oppose lease renewals and lists various grounds which a landlord can rely upon.

The Tenant advocated that the Landlord’s proposed works had no practical use other than eviction of the Tenant. However both the County Court and High Court (on appeal) found for the Landlord. The High Court then gave permission to allow the Tenant to appeal directly to the Supreme Court (leapfrogging the Court of Appeal) to contest the initial finding.

The Supreme Court held that ground (f) (where the landlord can refuse a renewal if it intends to demolish or reconstruct the premises or carry out substantial works i.e. the redevelopment ground) requires a firm and settled intention to carry out the proposed works. A landlord’s motive is irrelevant other than to test if the intention required by section 30(1) (f) exists. It is immaterial whether a landlord’s intention is reasonable or whether reasonable changes to the proposed works could be made to allow the tenant’s continued possession. The pertinent issue is what a landlord intends if ground (f) is to apply. The Courts will consider the nature of a landlord’s conditionality to see if it can satisfy ground (f). This ground assumes a landlord’s intention to demolish or reconstruct the premises is obstructed by the tenant’s occupation. It follows that a landlord’s intention to carry out the works cannot be conditional on the tenant asserting their claim to a new tenancy. The intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy.

The Supreme Court judges found in this case that the entire value of the proposed works existed in removing the Tenant and not in any benefit of the actual works. The Courts examine evidence as to a landlord’s purpose or motive to ascertain and assess the conditionality of the landlord’s intention, only then can they conclude if it is in accordance with the statutory objective behind the redevelopment ground. In this specific case the Landlord was open in its evidence that once the Tenant vacated the premises the works would no longer be carried out.

Consequences for Commercial Landlords and Tenants

The Supreme Court’s decision has set a precedent that the judiciary must be satisfied the proposed works will actually be done, even if the tenant were to leave voluntarily, for Section 30 (1)(f) of the 1954 Act or Article 12 (1) (f) of the Business Tenancies to oppose a lease renewal (“ground f”) to be relied on successfully.

The Courts have always examined closely if proposed works had a marginal benefit for premises and the genuineness of the landlord’s intention to carry out the works. The Courts will now look beyond the intention held, if the landlord’s motive is to get rid of the tenant rather than carry out the works, then the landlord will be unable to rely on a the redevelopment ground to refuse a lease renewal.

The ruling offers further protections for business tenants but potentially more hoops for commercial landlord’s to jump through to take back possession of their premises from a  “secure tenant”. Landlords in England and Wales will have to ensure they comply with all steps of the “contracting out” procedure (tenant has no right to stay on in premises after lease ends) provided for under the 1954 Act if they have any intention of taking back premises in the future. On the other hand, commercial landlords in Northern Ireland cannot avail of the “contracting out” procedure as this mechanism is not provided for under the Business Tenancies Order. This will make it particularly difficult for landlords in Northern Ireland to take back possession of their premises as there this is an automatic statutory right for tenants to stay on in commercial premises under the Business Tenancies Order.

Landlords will need to consider carefully what they intend to do with the premises if they are relying on ground f to take back possession. The Supreme Court made clear that a landlord must show it would still intend to carry out their proposed works, even if a tenant has left the premises, to successfully rely on ground f.  The upshot is that it will be difficult for a landlord to use ground f as a means of getting rid of a tenant in England, Wales and Northern Ireland.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.

Shane Conlan, Solicitor, Property Team, Cleaver Fulton Rankin, Solicitors.