Misrepresentation and Section 25 notices: What landlords need to know

When faced with a Section 25 notice opposing renewal, a tenant can choose to accept the notice and the termination of the tenancy or challenge that opposition and issue court proceedings. Ros Monk, partner in our land and property dispute resolution team, looks at the legal position and the options available to landlords.

 The decision in McDonald’s Restaurants Limited v Shirayama Shokusan Company Limited [2024] highlighted that if a landlord obtains an order for the termination of a tenancy by way of misrepresentation, a tenant may be entitled to damages.

However, what about the situation where no court order is obtained and the tenant vacates in reliance on the Section 25 notice or counternotice? Does the landlord still need to comply with its ground of opposition once the tenant has vacated? If it does not, does the tenant have a potential claim against a landlord?

 Inclusive Technology v Williamson [2009]

 Surprisingly, prior to the decision in McDonald’s, there is only one reported case on this issue – Inclusive Technology v Williamson [2009] EWCA – and the case is not well known.

Here, the landlord served a Section 25 notice opposing renewal of the lease on the basis of ground (f), redevelopment. The notice sought to terminate the tenancy on 31 January 2007.

Prior to serving the notice, the landlord had told the tenant it intended to redevelop the property. In the covering letter serving the notice, the landlord referred to those previous exchanges and said it was “… necessary to obtain vacant possession to carry out the intended work”.

The tenant accepted the notice. The tenant signed a lease for alternative premises, took the statutory compensation and vacated the property in mid-December 2006.

However, it later turned out that in fact, by September 2006, the landlord had decided that it would delay the redevelopment works until an unspecified date and then re-market the property.

When the tenant discovered that the landlord had not commenced redevelopment works to the property, it issued court proceedings.

The tenant in McDonalds relied upon Section 37A (1), but in this instance where there is no court order, the relevant provision is Section 37A (2) of the Landlord and Tenant Act 1954.

This provides that:

 (2)  Where–

(a)  the tenant has quit the holding–

(i)  after making but withdrawing an application under section 24(1) of this Act; or

(ii)  without making such an application; and

(b)  it is made to appear to the court that he did so by reason of misrepresentation or the concealment of material facts.

…the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damage or loss sustained by the tenant as the result of quitting the holding.

The tenant in Inclusive Technology claimed compensation on the basis that it had quit the premises by reason of misrepresentation or concealment of material facts.

In response to the proceedings, the landlord argued that when it has served the notice in June 2006 it had intended to undertake the work as stated in the notice. However, that intention had later changed.

What did the Court decide?

At first instance, the Court decided that the landlord had not misrepresented its intention at the time of service of the Section 25 notice, and crucially that there was no obligation on the landlord to update the tenant if that intention changed.

The tenant appealed to the Court of Appeal, which found in favour of the tenant.

The Court of Appeal decided that the representations (being the Section 25 notice, the conversations and covering letter) made by the landlord were special representations made as part of a statutory process and should be treated as a continuing representation.

That meant that if the representation changed, the landlord was obliged to inform the tenant. If the landlord did not inform the tenant of the change, then this would be regarded as concealment.

Here, therefore, the landlord should have updated the tenant as to its changed intention.

However, the Court of Appeal specifically said that not every case in which a hostile Section 25 notice is served will give rise to a continuing representation. It will be a matter of fact in each case.

In this instance, the Court awarded the tenant damages to reflect the difference in rent between its new premises and the rent payable for the property.

Takeaways for landlords

 This judgment is a salutary tale for landlords, but you should bear in mind that each case will be considered on its facts.

To try and limit the risks of a claim against you:

• Prior to service of a Section 25 notice or counternotice, you should consider carefully the ground of opposition and your plans for the property.
• Landlords should disclose as little as possible about their plans for the property. If a tenant presses for information, as a well-advised tenant is likely to do, you should consider this carefully with your legal advisors before providing information. This will need to be balanced against the potential advantages of disclosing information.
• If information is provided but the situation changes after the notice has been served, consider with your lawyers as to whether you should update your tenant as to your intentions.

If you would like to speak with one of our lawyers, then please get in touch with our Land and Property Dispute Resolution team on 01772 258321.