UK: Lease Renewal: No New Lease For Litigious Tenants

Last Updated: 30 September 2014
Article by Sarah Moore

Because of a history of litigation between a landlord and its tenants, the landlord was justified in refusing to grant the tenants a new business lease.

Unusually, this is the first of two recent case in which a tenant's behaviour has resulted in the tenant being refused a new tenancy. The second case, Youssefi v Mussellwhite, is also reported on in this bulletin.

As a general rule, a tenant who occupies premises for the purpose of a business will have the right to a new lease when the tenant's lease expires, provided the lease is within the Landlord and Tenant Act 1954 (LTA 1954). The landlord can oppose the grant of a new lease to the tenant, but only on the grounds which are set out in the LTA 1954.

Ground (c) of the LTA 1954

The most commonly used ground of opposition is ground (f), which is used if a landlord wishes to redevelop the tenant's premises. However, in the recent case of Horne & Meredith Properties v Cox, the landlord took the unusual step of opposing the renewal on ground (c) of the LTA 1954. Ground (c) sets out two separate limbs, under which the tenant ought not to be granted a new tenancy:

  1. If there are substantial breaches of the tenant's obligations under his tenancy (apart from disrepair and rent arrears).
  2. For any other reasons connected with the tenant's use or management of the premises. The tenant does not have to be in breach in order for the landlord to succeed under this second ground and the judge is entitled to look at anything regarded as relevant in connection with the tenant's use and management of the premises.

The judge has a discretion about whether to give the tenant a new tenancy

If the landlord opposes granting a new lease under ground (c) and the basic facts have been established, the judge then has a discretion about whether or not to order the new lease. The judge's discretion is wide and can take into account all the relevant circumstances, including what is likely to happen if a new tenancy is granted. The judge has to ask himself whether it would be unfair to the landlord, taking into account the tenant's past performance and behaviour, if the tenant were to enjoy the advantage which the LTA 1954 provides.

Other grounds of opposition are discretionary

As well as ground (c), some of the other grounds in the LTA 1954 are also discretionary so that, if the ground is made out, the judge has a discretion about whether to order a new lease:

  • Ground (a) – failure to repair
  • Ground (b) – persistent rent arrears
  • Ground (e) – current tenancy created by sub-letting of part

The tenants had been in dispute with the landlord

In this case, Mr Cox and Miss Billingsley were the tenants of a shop in Shropshire, which sold upmarket women's clothing. For 16 years or more, the tenants had been involved in litigation with their landlord. The litigation concerned alleged obstructions to the tenants' right of way and six parking spaces at the back of their shop and had cost the parties several thousand pounds each. The judge in the county court described the cost to the landlord as "absolutely colossal".

Nine different firms of solicitors and at least as many barristers had been involved in the litigation and there had been no fewer than 10 sets of proceedings. All the proceedings had been initiated by the tenants.

The county court judge said that the litigation was likely to continue if the tenants were granted a new tenancy, as the tenants' approach to the dispute with their landlord was unlikely to change.

The tenants' lease was protected under the LTA 1954 and they were entitled to apply for a new lease. However, the landlord objected, citing the second limb of ground (c). The county court judge found that the landlord had proved his case under this limb and the tenants appealed to the Court of Appeal.

The Court of Appeal refused to order a new lease

In the Court of Appeal, Lord Justice Lewison found that the second limb of ground (c) should be given a wide interpretation and that the litigation between the parties could be taken into account when deciding whether to order a new lease.

The judge held that the test for the second limb of ground (c) is whether it would be fair to the landlord, having regard to the tenant's past behaviour, for the landlord to be compelled to re-enter into legal relations with the tenant. This was the "value judgment" that the judge had to make. In this case, the judge in the Court of Appeal agreed that it would not be fair to compel the landlord to grant a new tenancy, because of the history between the parties and the fact that the relationship between the parties had irretrievably broken down.

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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