A recent ruling in S Franses Limited v The Cavendish Hotel (London) Limited gives us new insight into the Landlord and Tenant Act.
Under the Landlord and Tenant Act 1954 the vast majority of commercial tenants are entitled to a renewal of their lease on its expiry on broadly similar terms subject to reasonable updating amendments such as the review of the rent to an open market rate and incorporating Energy Performance requirements.
The landlord is able to object to a renewal within the Landlord and Tenant Act if they fall within a narrow set of exemptions. The most litigated grounds on which Landlords seeks to rely on “ground (f)” which requires the landlord to show that on termination of the current tenancy it intends to substantially demolish or redevelop the property and that such work could not be carried out with the tenant in occupation.
Santander UK plc v LPC Estates Limited
The tenant in this matter had the benefit of renewal rights under the Landlord and Tenant Act and requested such a renewal on the expiry of their lease. The landlord opposed the renewal citing ground (f) as the reason. The landlord had already entered into a building lease with a third party to carry out the redevelopment.
The landlord’s ability to refuse the renewal of the lease was upheld in spite of the intention that the redevelopment would be carried out by a third party.
S Franses Limited v The Cavendish Hotel (London) Limited
The tenant held their premises on two leases, both of which included Landlord and Tenant Act renewal rights. The landlord opposed renewal to requests on the basis of ground (f) reasons.
The county court found that the scheme of works had been specifically designed to satisfy ground (f) irrespective of the use to the landlord of those activities. The courts have differed on whether or not the contrived nature of the redevelopment is material in deciding whether ground (f) is satisfied or not. The case was the subject of an appeal to the Supreme Court. The Supreme Court’s ruling on 5th December 2018 (delivered by Lord Sumption) allowed the tenant’s appeal largely on the basis that the landlord’s proposed works were contrived so as to gain vacant possession from the tenant, rather than evidencing a genuine intention held by the landlord to carry out the works irrespective of the Tenant’s occupation. The ruling makes clear that the Landlord’s intention to demolish and reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy.
The Santander ruling has solidified the legal precedent that the redevelopment of a property can be outsourced to third parties which will be a comfort to landlords who are often dissuaded from opposing renewals because the courts have previously varied how high they set the threshold for an intention to redevelop.
The S Franses ruling should discourage a Landlord’s attempt to use the reconstruction ground (f) by proposing to carry out commercially nonsensical works in order to frustrate the renewal process. Such tactics might otherwise be exploited by a landlord leaving the lease renewal rights of tenants under the Landlord and Tenant Act in tatters.
Although there are no inbuilt anti-avoidance measures included in the Landlord and Tenant Act, the Supreme Court has set a precedent which will discourage a landlord fabricating works to defeat their tenants’ rights.
We don’t anticipate there being any let up in the amount of litigation that currently arises from disputes relating to Landlord and Tenant Act renewals.