UK: Landlord & Tenant, June 2010 - Opposing Lease Renewal Proceedings On Fault Based Grounds

Last Updated: 30 September 2010
Article by Nitej Davda

Originally published in June 2010

Landlords of commercial premises are often attracted to the grounds of opposition referred to in the Landlord and Tenant Act 1954 (the 1954 Act) which are referable to fault on the part of the tenant. This is because, if successful on one of the 'fault based grounds', the landlord does not need to pay statutory compensation to the tenant as it would have to do if opposing on, for example, grounds of redevelopment. Some important reminders for landlords wishing to rely upon fault based grounds are set out below.

Quoting the ground

Previous editions in this series have focused upon the importance of quoting grounds of opposition in Section 25 Notices or in response to Section 26 Requests. By way of reminder, landlords who serve a Section 25 Notice quoting grounds of opposition to the grant of a new lease must quote all the grounds on which they rely in the Notice. If served with a tenant's Section 26 Request a landlord must serve a Counter Notice within two months of the date of service if a ground or grounds of opposition are to be relied upon. The date of service of a Section 25 Notice or Counter Notice is referred to in this briefing as the Relevant Date.

Once a Section 25 Notice or Counter Notice is served it cannot be amended. Grounds of opposition cannot be added to and so a failure to identify a ground of opposition at the Relevant Date will preclude a landlord from relying upon it in the lease renewal process.

The principal fault based grounds

There are four principal fault based grounds within the 1954 Act. They are:

  • the tenant's failure to comply with an obligation to repair (Section 30(1)(a));
  • the tenant's persistent delay in paying rent (Section 30(1)(b));
  • other substantial breaches of obligation by the tenant (within Section 30(1)(c)); and
  • any other use connected with the tenant's use or management of the property demised (within Section 30(1)(c)).

As with the other grounds of opposition contained within the 1954 Act, once court proceedings are issued the court will ordinarily determine whether the landlord has made out the fault based ground(s) first.

Reasonableness

It may be relatively simple to prove a breach of the covenant to repair or that the tenant is guilty of persistent delays in paying rent. However under the 1954 Act that is not all a landlord has to prove when relying upon a fault based ground. In addition the landlord has to demonstrate that in all the circumstances the tenant ought not to be granted a new tenancy. When considering this question the court has the power to look at all the circumstances of the landlord and tenant relationship, not just the ground(s) relied upon.

Disrepair: Proving the Ground

The starting point in establishing disrepair is the terms of the lease itself and in particular the scope of the tenant's obligation to repair. Repairing covenants are not, however, interpreted in a vacuum. In order to identify precisely what it is that the tenant has to do to comply with the covenant (and to remedy any breach of it) the demised premises themselves have to be considered. To put it another way the standard of repair has to be judged in light of the age and condition of the building at the date of the lease and its location.

This means that the amount of work a tenant has to do to remedy breaches of repairing covenant (and therefore the seriousness of the breaches) in a new purpose built office in the heart of a central business district will differ from aged converted premises in a tertiary business location. The ground cannot be relied upon in circumstances where there is only historic disrepair at the Relevant Date. The eradication of disrepair by the time when the matter comes to be considered by a court however is not fatal to a claim under this ground, though it will be a factor for the court to consider when exercising its discretion.

Disrepair: The Court's discretion

There are many factors that a Court will have to consider when looking at deciding in whose favour to exercise its discretion. They include:

  • the state of the premises as a result of the breaches of repairing covenant both at the Relevant Date and at the date of the court hearing;
  • the severity of the breaches;
  • whether there have been repeated instances of such breaches over the course of the term;
  • the action taken by the landlord during the course of the term to ensure that breaches of repairing covenant are remedied; and
  • whether the tenant will consent to any new lease containing an express covenant that the breaches that form the substance of the claim and that are extant at the date of the court hearing are remedied within a set period of time.

The breach of repairing covenant need not be substantial in order to rely upon the ground but it is unlikely that minor breaches of repairing covenant or longstanding breaches that the landlord has sought to have the tenant remedy will be sufficient to persuade a court to grant possession on this ground.

Rent: Proving the Ground

Leases will typically provide for rent to be payable in advance on the usual quarter days. Therefore proving the ground will ordinarily be a straightforward question of fact, comparing the tenant's payment record against the wording of the covenant. The rationale of the ground is to ensure that a landlord is not saddled with a tenant who is likely to be an unreliable payer of rent. The ground requires establishing persistent delay. It does not require the existence of arrears of rent.

Therefore it is not a complete defence to a claim under this ground that there were no arrears of rent at the Relevant Date or that the arrears have been paid by the date when the court comes to determine the question. The history of arrears at both these dates are however relevant factors for the court to consider when exercising discretion.

Rent: The court's discretion

It is in reality more difficult for a landlord to secure possession of premises under this ground than under the other fault based grounds. The reason for this is that the risk of future late payments is a relatively easy one to guess against; by imposing for example a requirement in any new lease that a tenant pays a rent deposit or provides a personal guarantor. It is really only in the case of tenants who wilfully ignore demands to pay rent or do not have any ability to offer security to a landlord in a renewal lease who are vulnerable under this ground.

Factors that would support the exercise of discretion under this ground would include:

  • a complete failure to pay rent over an extended period of time without explanation;
  • dishonoured cheques tendered in respect of rent;
  • repeated actions by the landlord arising out of non payments of rent (be they debt claims, forfeiture by action or forfeiture by re-entry); and
  • no suitable assurance on the part of the tenant that the failures to make payments of rent would not be repeated if a new lease were granted.

A landlord cannot rely upon this ground in circumstances where any delay was as a result of a course of dealings in which the landlord or its predecessor permitted (or did not object) to rent being paid late or otherwise than provided for in the lease

Other substantial breaches

There are three steps for the landlord to establish in order to succeed under this ground:

1 That there exist or have been breaches of covenant that do not fall exclusively within the grounds identified earlier in this briefing. If therefore there have been historic problems with disrepair but at the Relevant Date there is no extant disrepair then 'Ground b' is not open to the landlord. However there is nothing in the 1954 Act to suggest that this could not form the basis of a claim under 'Ground c'. The breaches on which the landlord relies can be as many or as few as the landlord can establish, though the more instances of breach that the landlord can establish the better. The landlord is not under an obligation to cite the specific breaches on which it relies at the Relevant Date. That such breaches are, in the view of the court, substantial.

2 This is something that the court will establish as a question of fact, taking into account the nature of the breaches themselves, the terms of the lease and the property in question.

3 The final step is to persuade a court that, as with the other fault based grounds, the breaches are such that it ought to deny the tenant his statutory entitlement to a new tenancy of the premises.

The tenant's use and management

There may be aspects of the tenant's use of the premises which, whilst not in breach of lease, may raise concerns to a landlord. These typically surround the use of the premises by the tenant. Use in contravention of planning legislation, use that is immoral or use that causes a disturbance to the local community may or may not be in breach of lease, but are possible bases upon which a landlord could rely upon this aspect of 'Ground c'.

Concluding remarks

It is perhaps overstating matters to suggest that landlords who seek to avoid granting tenants a new lease on fault based grounds will inevitably find it an impossible task. However the difficulties that a landlord might face when seeking to rely solely on fault based grounds should never be underestimated. With such grounds being ultimately in the discretion of the court there is always an element of uncertainty whether reliance upon a fault based ground will bear fruit from the landlord's point of view. It is therefore essential that landlords seek professional advice as to the prospects of success and the potential pitfalls before deciding to oppose the grant of a new lease to a business tenant on fault based grounds.

This series of briefings is aimed at landlords and tenants of commercial property and future editions will focus on other aspects of the lease renewal process as well as common problems that are experienced during the course of the landlord and tenant relationship.

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