Hayley Bamber, property litigation lawyer at Harrison Drury, looks at a long-awaited Supreme Court judgment in S Frances Ltd v The Cavendish Hotel (London) Ltd which has implications for both landlords and tenants on the issue of lease renewals.
In a judgment handed down on December 5, the Supreme Court decided that a commercial tenant will be entitled to a new lease in circumstances where a landlord has opposed a lease renewal on the basis they intend to redevelop the property, but where the redevelopment is purely for the purpose of obtaining vacant possession.
Background to Security of Tenure
Under Part II of the Landlord and Tenant Act 1954, a commercial tenant is entitled to renewal of their lease. This is known as security of tenure. However, the 1954 Act provides certain grounds upon which a landlord can seek to oppose a lease renewal, one of which is that the landlord intends to demolish or reconstruct the premises, or to carry out substantial works of construction and could not reasonably do so without obtaining possession of the property. This is known as ‘ground (f)’.
What happened in this case?
In S Frances Ltd v The Cavendish Hotel (London) Ltd, the tenant, a textile dealership and consultancy, requested a new lease. The landlord sought to oppose the lease renewal on the basis of ground (f) as it required vacant possession of the property to carry out works. This was accepted by both the County Court and the High Court, and the tenant was given permission to appeal to the Supreme Court.
Previously, landlords were only required to demonstrate that (i) they had a genuine intention to carry out the works and (ii) that they would be practically able to do so to satisfy ground (f) and successfully oppose a request for a new lease.
In the circumstances, it appeared these conditions were both satisfied. However, the question before the Supreme Court related to the quality of the intention of the landlord.
The landlord accepted that the entirety of the proposed works was solely for the purpose of getting the tenant out of the property, and there was no other benefit to be derived from the works themselves.
The landlord acknowledged that its intention to carry out the works was conditional upon the tenant leaving and the landlord was not prepared to consider carrying out the works with the tenant in possession, as this defeated the purpose.
What were the reasons for the decision?
It was held that ground (f) assumes that the landlord’s intention to demolish or reconstruct the property is being obstructed by the tenant’s occupation. This indicates that the landlord’s intention to demolish or reconstruct the property must exist independently from the tenant’s claim for a new lease.
The further test therefore is whether or not the landlord would intend to carry out the works if the tenant were to leave voluntarily. In this instance, the landlord had no intention of carrying out the works other than as a route to obtaining vacant possession of the property. This test was therefore not satisfied and the landlord was found not to have the requisite intention to carry out the works in order to satisfy ground (f) and so the tenant is entitled to a new lease.
What does this mean for commercial landlords and tenants?
This decision will be welcomed by commercial tenants who will be reassured with the knowledge that a landlord cannot rely on ground (f) to oppose a lease renewal if the entire purpose of the works is to obtain vacant possession.
Landlords seeking to defeat a tenant’s request for a new tenancy must demonstrate their intention to carry out works is not conditional on whether the tenant chooses to assert their right to a new tenancy, and that the works would be carried out in any event.