Opposed lease renewals: Landlord’s opposition on redevelopment ground

A review of key issues from S Franses Limited v The Cavendish Hotel (London) Limited

Most property professionals will be aware that business tenants are not ordinarily forced to leave their premises at the end of their lease terms. So long as the lease has not been contracted out of the security of tenure provisions of the Landlord and Tenant Act 1954, a tenant will, in principle, have the protection of the Act and be entitled to a new lease. However, there are certain grounds under the Act whereby landlords may oppose the grant of a new lease. Probably the most commonly encountered is the “redevelopment ground”, being ground (f) of section 30(1) of the Act, which states:

“(f) that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work or construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding.”

The recent case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB) (03 July 2017), an appeal in the High Court from a County Court decision, highlighted some key points for consideration in opposed lease renewals relating to the redevelopment ground. The case relates to a tenant’s gallery premises on Jermyn Street, London selling antique tapestries and textile art.

While numerous issues were considered based on the facts of the case, we have chosen to highlight two key points as reminders of important ways in which this section operates.

Point 1

When considering the landlord’s intention, the court does not have to take any account of the landlord’s motive for doing the works. The evidence here showed that the landlord’s scheme of works had been concocted purely with a view to satisfying the redevelopment ground, rather than as a means of achieving its separate commercial objectives. However, so long as the landlord’s intention was honest and genuine, as well as being fixed, settled and unconditional, the landlord would be found to have the relevant “intention.” The focus on the appeal was whether the landlord’s intention really was unconditional in circumstances where it would only be done in order to succeed on the redevelopment ground, but with no other commercial reason for doing so. The judge found that such a situation was acceptable because, firstly, the 1954 Act does not contain any anti-avoidance provisions. Secondly, because ground (f) refers to intention, not motive, and the law traditionally recognises a distinction between the two i.e. an examination of what the Landlord intends to do and whether he intends to do it, but not why he may intend to do it.

Point 2

When looking at the landlord’s intended works, one needs to divide them into two categories, namely works that may be carried out under the landlord’s right of entry clause under the lease and works that do not fall under that clause. The works which can be carried out under the clause are not to be considered under ground (f) because they can be carried out without obtaining possession of the holding. Here, the judge had wrongly considered all of the works intending to be carried out, rather than only those ones which were not covered by the right of entry clause. This is likely to be a very important point on which the tenant has succeeded (albeit subject to any further appeal), because the particular landlord’s entry clause in the lease was very widely drafted: in other words, the vast majority of the landlord’s intended works could arguably be carried out under the lease terms and without the need therefore to obtain possession of the holding.

Possibility of further appeals

Both sides are considering their positions as to further appeals.  Amongst other things, the tenant has been granted the right to apply for permission to appeal to the Supreme Court relating to point 1 above, more specifically on two points of law, namely (a) whether the Landlord’s intention is conditional, and therefore insufficient, if it only intends to do the works if they are necessary to achieve ground (f); and (b) whether the Landlord can rely on works which it has devised with the sole or predominant commercial objective of getting the tenant out. Meanwhile, the landlord is asking the Court of Appeal to allow a full retrial in the County Court on the basis that it wants to put in further evidence of its intention.