UK: Can A Contrived ‘Charade' Prevent A Tenant From Renewing Their Lease?

Last Updated: 13 September 2017
Article by Isaac Taylor

Most Read Contributor in UK, October 2017

It is well established that a landlord can oppose renewal of a business lease if he demonstrates settled intention to demolish, reconstruct or carry out substantial construction works to the premises or a substantial part (and could not reasonably do so without obtaining vacant possession).

But how genuine do those intentions have to be and is the landlord's motive and the economic viability of any relevance? The Courts have consistently resisted analysing the economic viability of the landlord's intentions unless they cast doubt on whether the intentions are genuine.

In the recent decision of S Franses Limited v The Cavendish Hotel (London) Limited [2017] EWHC 1670, in the High Court on Appeal from the County Court, a tenant's claim under the Landlord and Tenant Act 1954 ("the Act") for a new tenancy at 80 Jermyn Street, London W1 ("the Premises") was dismissed on the basis that the Landlord had made out its ground of opposition under s.30(1)(f). However the case raised important questions of interpretation and considered the relevance of a landlord's intention and motive.

Background

S Franses Limited ("the Tenant"/appellant) is a textile dealership with a renowned specialism in antique tapestries and textile art. The Tenant occupied the ground floor and basement of the Premises. Part of the Premises also houses a tapestry archive. The gallery had operated for more than 25 years. The remainder of the building is occupied and managed by The Cavendish Hotel (London) Limited ("the Landlord") as a luxury hotel.

On 16 March 2015 the Tenant served a request for a new tenancy under s.26 of the Act. On 15 May 2015 the Landlord served a counter notice relying on ground s.30(1)(f) "that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises".

It was the Tenant's case that some aspects of the Landlord's intended works had been contrived only for the purposes of satisfying ground (f). Both in the first instance decision and on appeal, the judges accepted the Tenant's case in this regard. The factitious character of the intended works was evidenced by the fact that a new central wall dividing what would become two retail units stopped two metres short of the shopfront at ground floor level. In cross examination, the witness for the Landlord accepted that the works would not be undertaken if the Tenant left voluntarily and that if the court ruled against the Landlord on ground (f) the works would not be undertaken. The judge on appeal noted that it seemed clear from the evidence that the Landlord's predominant purpose in devising the works was to obtain vacant possession of the Premises underground (f).

First Instance

The judge at First Instance assessed the Landlord's witness to be a "convincing, realistic witness and a professional woman of integrity". He did not believe the Landlord would renege on its undertaking to the Court to carry out the works if a new tenancy was not granted. The judge held that the underlying motive of the Landlord is irrelevant unless it undermines the assertion of the Landlord that it has a genuine and settled intention to proceed. Additionally he determined that whilst the Landlord's current intention is in one sense conditional (i.e. conditional on the termination of the current tenancy, the witness having accepted that the Landlord would not proceed with the works if vacant possession was obtained voluntarily), this could not be said to vitiate his intention as at the time of the hearing.

Appeal

The Tenant appealed on nine separate grounds. This summary will focus only on some of the grounds of appeal.

The Tenant had two primary objections to the conclusions of the First Instance judge:

  1. The judge had mischaracterised the nature of the Landlord's intention. It is not that the Landlord's intention is conditional "on the termination of the current tenancy" but rather that it was conditional on the works being necessary in order to satisfy ground (f).
  2. Once correctly characterised it is clear that the Landlord's conditional intention cannot in law be sufficient to satisfy the statutory test.

The Tenant argued that the Landlord's intention to carry out the works was conditional on these works being necessary in order to satisfy ground (f) and that this was not a sufficient intention within the meaning of the Act.

The Tenant also raised a point of statutory construction arguing that by enacting ground (f) "Parliament intended that the protection of business tenants should not be a barrier to buildings and land being improved... which is in the public interest... it is inconceivable that it was Parliament's intention to allow a wealthy landlord to simply subvert the protection... by promising to do works for the sole purpose of getting the court to make an order under the Act."

The Landlord argued that the court should not be concerned with questions surrounding the wisdom or long-term viability of the works nor the question of the landlord's underlying motive. The issue of intention was also to be judged as at the date of the hearing.

Decision on Appeal

On appeal the judge disagreed with the Tenant that the purpose of the Act was to "secure the most beneficial and efficient use of land". He stated that "although it [the Act] may be predicated on the assumption that market forces will usually generate commercially viable projects, that is not a hard substratum of legislative policy".

The judge agreed with the Landlord that the general trend of the authorities is that questions of motive are irrelevant to issues surrounding ground (f). This is because the paragraph in the Act refers to intention, not motive (the law traditionally recognises a distinction between the two). He also agreed that the question of intention must be assessed as at the date of the hearing.

A court has to be satisfied that the Landlord would remain steadfast to the intention of completing the works. As a matter of common sense and commerciality, if a landlord, as here, says they are only doing the work because without doing so they would not be able to obtain vacant possession, then a court is entitled to be sceptical about the genuineness of the landlord's intention to deliver the project, since such landlord's assertions are often short-lived. However in this case, taking into account the witness evidence and the undertaking to carry out the works, the judge decided the Landlord had a settled and genuine intention to proceed. As such the Tenant's appeal failed and the Landlord was held to have successfully made out its ground of opposition under s.30(1)(f).

Comment

Landlords will be able to defeat a tenant's right of renewal by contriving a development for the sole reason of obtaining vacant possession (provided there is a genuine and settled intention to proceed with the works). In this case the proposed works were described as a "charade". A "leapfrog" application has been granted so that the decision may be considered by the Supreme Court. We will keep you informed.

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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