What landlords and tenants need to consider when opposing lease renewals
If a tenancy is protected by the Landlord and Tenant Act 1954 (“The Act”), the tenant is entitled to be granted a new lease, unless the landlord can establish a ground of opposition to that new lease.
Ros Monk, partner in our property litigation team analyses and comments on a recent Court of Appeal decision relating to opposed lease renewals under the Landlord and Tenant Act 1954.
Background to the case
In the recent decision of Gill v Lees [2023], the Court of Appeal has given guidance on what the courts should consider when deciding if a landlord has established a “fault” ground of opposition to a new lease under the Landlord and Tenant Act 1954.
The Act sets out the different grounds of opposition, which are:
- Property is in disrepair.
- There are arrears of rent.
- There are other breaches of covenant.
- The landlord will provide suitable alternative accommodation.
- The tenancy was created by way of sub-letting.
- The landlord intends to redevelop the property.
- The landlord intends to occupy the property.
Grounds (a), (b), (c) and (e) are discretionary grounds meaning that even if the landlord makes out that ground then the court has a discretion to order a new lease.
The other grounds are mandatory, meaning that if the landlord establishes that ground then the court must terminate the tenancy.
Grounds (e), (f) and (g) are ‘no fault’ grounds, meaning that if the tenant is not awarded a new lease based on one of these grounds, then the landlord needs to pay compensation to the tenant.
The most common grounds are ground (f) and (g) and reported decisions on the other grounds are relatively uncommon. This appeal relates to ground (a), (b) and (c) and contains useful guidance for both landlords and tenants.
The facts
In August 2018 the tenant served notices on the landlord requesting a new lease. The landlord instructed his surveyor to inspect the property. The surveyor found that the property was in disrepair and prepared a report setting out the disrepair. The landlord then served a counternotice to oppose renewal and cited grounds (a), (b) and (c).
The tenant then issued court proceedings challenging the opposition. Whilst its position in the court proceedings was that there was no disrepair at the premises, in actual fact the tenant instructed contractors who undertake works seeking to remedy the issues set out in the surveyor’s report. This only came to late mid-way through proceedings.
The result of the works was that by the date of the trial, the property was no longer in disrepair and the tenant at that point was not in breach of its repairing covenants.
The decision
The judge at first instance considered each of the grounds in turn:
- Disrepair – the judge held that whilst the tenant had been in breach at the date of the 1954 Act Notice, by the time of trial the breach had been rectified. The judge found for the tenant here.
- Rent arrears – the judge found that whilst there had been a persistent delay in paying the rent – the delays were only minor, and he was satisfied they would not re-occur.
- Other breaches – the judge found that these were not substantial breaches. Here the judge also considered the tenant’s conduct in the litigation, noting that whilst it was unsatisfactory it did not outweigh the other issues.
Considering the issues in the round, the judge found they were not enough to deny the tenant a new lease, noting that he considered that the tenant would be likely to comply with the terms of the new lease and, essentially, that it had learnt its lesson.
The appeal
The Court of Appeal upheld the trial judge’s decision. It considered two issues in particular:
- What the relevant date is for assessing whether the tenant is in breach of covenant; and
- How the court should consider the issue of whether the tenant “ought not” be granted a new lease – this phrase is used in these three grounds of opposition.
The CA was asked to consider when the state of repair of the building should be considered. The tenant argued that this should be at the date of the trial. In contrast the landlord argued that the court should instead look at the tenant’s occupation.
It agrees with the landlord. It noted that what happens between the date of the notice and the trial is clearly relevant and could be decisive.
Even if a tenant has remedied a breach by the trial, those breaches could still be considered if the tenant has a bad track record and delays remedying. This is a key point for tenants to note.
The CA also considered the issue of whether the tenant “ought not” be granted a new tenancy and the exercise of judicial discretion.
It found that the judge at first instance was right to consider the overall circumstances, including the behaviour of the tenant in the past as well as the tenant’s intentions for the future.
In extreme circumstances a tenant’s conduct in the court proceedings could be a reason for refusing a new tenancy.
Wider implications
This decision will be unwelcome news to tenants as it reminds landlords that a tenant’s breach of covenant at any point during the term could potentially be used by the landlord to oppose renewal.
Establishing a fault ground means that the landlord does not need to pay compensation to the tenant thereby making it attractive to landlords.
That said landlords need to bear in mind that when relying on a discretionary ground of opposition, that a judge will consider the overall behaviour of the tenant and circumstances.
To succeed the landlord will need to persuade the judge that all of this justifies a decision not to renew the lease.
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