16/01/2019

Commercial lease renewal: are your intentions honourable?

When a business tenant wants to renew its lease, the landlord can only oppose the renewal under a limited number of grounds contained in section 30(1) of the Landlord and Tenant Act 1954 (1954 Act).  Intention to demolish or reconstruct the premises pursuant to section 30(1)(f) is one ground (ground (f)), but what happens if the works the landlord intends to do are being used solely to get the tenant out?

The question regarding a landlord’s intention was considered by the Supreme Court in the recent case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62, following an appeal by a tenant who was determined to have his lease renewed and remain in his business premises.

The tenant was Mr Franses (Mr F) who ran his textile dealership on the ground floor and basement of 80 Jermyn Street which formed part of the Cavendish Hotel owned by his landlord (CH).  To say that CH did all they could to get rid of Mr F is an understatement; they served a section 25 notice relying on ground (f) as well as attempting to start forfeiture proceedings by alleging various health and safety breaches.  All these attempts were resisted by Mr F who undeterred, applied to the county court for a new lease.

The county court looked at CH’s plans for redevelopment which involved sub-dividing Mr F’s premises into two new retail units and decided that the plans had been contrived solely for the purposes of ground (f).  This was because many aspects of the redevelopment seemed pointless e.g. creating an impractical stepped floor, unnecessary repositioning of smoke vents and the demolition of an internal wall which would be immediately rebuilt in the same place.  However, as CH gave an undertaking to the court that they would carry out the works if the court rejected Mr F’s application, the court held that CH had a genuine intention to carry out these works and declined to order a new tenancy.

Mr F appealed to the High Court, which agreed with the lower court: all a landlord had to do was satisfy the two-part test of (1) a genuine intention to do the works, and (2) a practical ability to do them.  The ”genuine intention” had been provided by CH’s undertaking to do the works if the lease application was refused.

Undaunted, Mr F ended up with his appeal being heard by the Supreme Court which decided in his favour.  The court said that the acid test was whether a landlord can oppose the grant of a new tenancy if the works which it says it intends to do, have no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily (CH had previously admitted that if Mr F had left voluntarily it would not carry out the works).  The result being that because CH had effectively made some of the works conditional on securing the tenant’s removal, the court found that the necessary intention was not there and Mr F’s claim for a new lease finally succeeded.

So what does this case mean for landlords in a similar position?

  • The courts will now be looking more carefully at situations where a landlord is relying on ground (f) to defeat a tenant’s application for lease renewal.
  • A landlord with genuine redevelopment plans should not be too concerned, but they should prepare for the genuineness of those intentions to be scrutinized.
  • Landlords will have to show they have the necessary intention to carry out the works and that they are not conditional on whether a tenant leaves voluntarily.

It may seem an obvious point, but if Mr F’s lease had been contracted out of the 1954 Act in the first place, he would not have been able to apply to the court for a new lease and CH would be confident of getting possession.  Whether more contracted out leases will be offered by landlords to ensure this remains to be seen.  Bevan Brittan’s Property team have considerable experience in advising landlords and tenants on all aspects of business tenancies from what type of lease should be granted through to lease renewal and the use of ground (f) in particular.
We cannot guarantee that your intentions will not be questioned, but we will ensure they are not considered dishonourable!