Business lease renewals: unconditional intention to redevelop

United Kingdom

The Supreme Court has given its eagerly-awaited decision on the right for a landlord to rely on the redevelopment ground in order to prevent a tenants right to renew its business lease (S Franses Ltd v The Cavendish Hotel (London) Ltd). For more on the background to case, see our previous Law-Now.

The decision focused on the landlord’s intention to redevelop under ground (f) of section 30(1) of the Landlord and Tenant Act 1954 (the 1954 Act). The key take-away points are:

  • The landlord’s intention must not be conditional on whether the tenant chooses to pursue his claim for a new tenancy.    
  • The “acid test” is whether the landlord would intend to do the same works if the tenant left the premises voluntarily.

Background

This case started as a business lease renewal, where the landlord (the Cavendish Hotel) opposed the grant of a new lease to the tenant (S Franses) on the basis of redevelopment relying on ground (f) under the 1954 Act: namely, that the landlord intends to demolish or reconstruct the premises occupied by the tenant (or a substantial part of them) and could not reasonably do so without obtaining possession.

S Franses is a textile dealership, specialising in antique tapestries and textile art. It occupies the ground and basement of 80 Jermyn Street, in St James’s, London. The remainder of the building is a luxury hotel, the Cavendish.

The landlord admitted that the works would not be carried out if the tenant left the unit voluntarily or, put another way, that the only reason to undertake them was to obtain possession from the tenant.

The High Court and County Court decisions

In both the Central London County Court and the High Court, the Cavendish Hotel succeeded and the judge agreed that it had satisfied the ground (f) test. Its motive for carrying out the works was irrelevant. S Franses appealed and was given permission to leapfrog straight to the Supreme Court, which gave its decision today.

The Supreme Court decision: the appeal was allowed

 

The Supreme Court has allowed the tenant’s appeal and decided that the landlord cannot use ground (f) as it has not shown that it intended, within the meaning of the 1954 Act, “to carry out the works specified in the scheme of works relied upon in opposition to the tenant’s application for a new tenancy”. The case turned on the question of the nature of the landlord’s intention in order to satisfy ground (f) and the relevance of the landlord’s purpose or motive in pursuing redevelopment of the premises.

 

The Court found that the landlord’s purpose or motive for carrying out the works is immaterial, except to test whether the landlord has the necessary unconditional intention to redevelop under ground (f). The Supreme Court also decided that it is irrelevant whether a landlord’s intention is reasonable. There was no dispute that the value of the landlord’s proposed scheme was in removing the tenant and not in any benefit from the reconstruction works. The landlord had admitted that they would not have done the works if the tenant had agreed to leave voluntarily or if the tenant had persuaded the Court that the works could reasonably be carried out whilst in occupation.

 

Accordingly, whilst the landlord’s motive is not directly relevant in itself, the court can, and following this decision will, look at the landlord’s motive as evidence from which inferences can be drawn as to the landlord’s genuine, fixed and settled intention to carry out the proposed works and whether that intention is conditional upon the action by the tenant to assert its right to a new tenancy.

 

In addition, on the facts of this case, the court found that the fact that the tenant was in possession of the premises did not obstruct the works that the landlord intended to do.

 

Take-away point

 

Landlords must continue to consider very carefully the works they are planning to do, if they oppose a new lease on the redevelopment ground. The Supreme Court has made it clear that a landlord must show that it would still intend to carry out the proposed works under ground (f), even if their tenant left the premises of its own accord and did not fight the landlord’s redevelopment claim. It is not enough for a landlord to use the ground (f) procedure solely as a means to get rid of a tenant.