The recent Court of Appeal decision in Youssefi v Mussellwhite  provides helpful guidance to commercial landlords opposing lease renewals on the grounds set out in s.30(1)(a)–(c) of the Landlord and Tenant Act 1954. It is now clear that ground (c) is broader than grounds (a) or (b) and landlords should carefully consider this ground when opposing lease renewals.
Several key points emerge from the Youssefi ruling:
A business tenant whose tenancy falls within Pt II of the 1954 Act (and thus has statutory protection) can apply for a new tenancy under the Act. A landlord who does not want to grant a new tenancy must establish one of the seven statutory grounds set out in s.30(1)(a)–(g) of the Act. This case concerned the first three grounds. Broadly, these are that the tenant "ought not to be granted a new tenancy" because of:
The tenant held a 1954 Act protected lease of commercial premises. Under the lease, the tenant was only liable to repair the interior of the premises (the landlord being responsible for the structure and exterior). At the end of the term, the tenant applied for a new lease. The landlord opposed the tenant’s application on the following s.30(1) grounds:
At first instance, the court held that the tenancy should be terminated on the basis of breach of both the repairing and access covenants (ground (b) was not made out). The judge decided that, although failure to control the ivy was not a direct breach of the tenant’s repairing covenant, the tenant had failed to comply with its implied covenant to use the premises in a tenant like manner. The judge also agreed with the landlord that the tenant had breached both the user covenant (by not opening a retail business as required by the lease) and the landlord’s access covenant (there being a history which demonstrated "a long-standing intransigence" on the part of the tenant to afford the landlord access to the property).
On appeal, the Court of Appeal considered whether the first instance judge had applied the correct tests when considering the s.30(1)(a)–(c) grounds of opposition. The Court concluded that, when considering whether a tenant "ought not to be granted" a new tenancy, the court has to ask itself "whether, looking forward to the hypothetical new term, the proper interests of the landlord would be prejudiced by continuing in a landlord/tenant relationship with this particular tenant." Lady Justice Gloster went on to observe that, in order to demonstrate that his interests are "prejudiced", the landlord does not have to show that the "relevant breach adversely affects the rental income or the value of the reversion".
In deciding the above question, the Court of Appeal held that ground (a) requires the court to focus exclusively on the state and repair of the holding. The court can have regard to the tenant’s past behaviour but only in relation to its repairing obligations.
Ground (b) should be approached in a similar way to ground (a). The court needs to "focus on the persistent delay in paying rent which has become due and nothing else".
In relation to ground (c), the Court of Appeal held that the approach was broader. A court was entitled to focus on both:
Applying the above principles, the Court of Appeal declined to grant a new tenancy to the tenant. They disagreed with the first instance decision on the disrepair point. Ground (a) had not been established because there was no breach of the tenant’s repairing obligation. The "holding" did not include the external wall. The tenant was only required to repair the internal parts of the premises and there was no implied covenant to deal with the ivy (there being an express landlord’s covenant to maintain the exterior of the premises). However, they upheld the decision of the judge at first instance in relation to ground (c).
This article was published in the Landlord and Tenant Review in October 2014.