UK: Business Lease Renewals - Competent Landlords

Last Updated: 24 July 2012
Article by Rachel Fletcher

Introduction

In Frozen Value Ltd v Heron Foods Ltd [2012] EWCA Civ 473, the tenant succeeded in defeating the landlord's ground (g) possession claim because the landlord had not been the competent landlord (within the meaning of section 44 of the Landlord and Tenant Act 1954) throughout the whole of the preceding five year period.

Section 44 of the 1954 Act defines the competent landlord as the person who holds the reversion expectant on termination of the tenant's tenancy and that reversion must be either a freehold or a tenancy with more than 14 months to run.

The facts

On 27 January 2010, the tenant, Frozen Value Ltd ("Frozen"), served a section 26 request for a new tenancy on Kwikfine Ltd, its competent landlord. At that time, Heron Foods Limited ("Heron") was the immediate landlord of Frozen but, as its head lease from Kwikfine Ltd expired 3 days after Frozen's lease and Heron was not in occupation of the premises, Heron was not the competent landlord. On 24 February 2010, Kwikfine Ltd granted a new headlease to Heron, at which point Heron regained its position as Frozen's competent landlord. Heron served a counter-notice to Frozen's section 26 request, opposing the renewal on the basis that it wanted to occupy the premises for the purposes of carrying on its own business, i.e. ground (g) of Section 30(1) of the 1954 Act.

Opposed Lease Renewals: ground (g)

Section 30(2) of the 1954 Act prevents a landlord from opposing a tenant's renewal application under ground (g) of section 30(1) of the 1954 Act if the interest of the landlord was "purchased or created after the beginning of the period of five years which ends with the termination of the current tenancy".

Decision

At first instance, the Court found in favour of Heron. It held that Heron intended to operate its business from the premises and that Heron was not barred by the five year rule.

The Court of Appeal upheld Frozen's appeal by a 2:1 majority. The Court held that, although a succession of interests could be aggregated to meet the five year test, the landlord must at all times during that five year period (which is calculated backwards from the termination date according to the section 25 notice/section 26 request) be the competent landlord. The Court of Appeal held that the effect of section 44 was that the reference to landlord in section 30(2) had to be read as meaning the competent landlord. As there had been a nine month period when Heron was not Frozen's competent landlord, Heron was prevented from relying on ground (g).

In the Court of Appeal judgment, there was much discussion of the cases of Artemiou v Procopiou [1965] and VCS Car Park Management Ltd v Regional Railways North East Ltd [2001]. The two majority judges distinguished these cases, finding that no inferences could be drawn from them as to whether a landlord must be the competent landlord for the entire five year period. Lord Justice Rimer disagreed with the majority and regarded Artemiou as wider authority on the effect of successive interests.

Considerations for Intermediate Landlords

This decision means that intermediate landlords wishing to rely upon ground (g) in order to oppose the grant of a new tenancy now have to act promptly in relation to their own lease renewals to ensure they maintain their status as competent landlord. According to this decision, even losing such status for a day means that a landlord will have to wait another five years before being able to rely on ground (g).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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