Successfully opposing renewal of a business tenancy because the landlord plans to redevelop can be trickier than it seems

Posted: 30/01/2019

Business tenants often have security of tenure under the Landlord and Tenant Act 1954. When their lease expires (or is ended early under a break right) the tenant can request a new one. The landlord may only refuse for a reason set out in the act. One of these (section 30(1)(f)) is that the landlord “intends to demolish or reconstruct the premises”…or carry out substantial construction works on the premises. If the landlord successfully invokes ground (f) then it must pay the tenant compensation for leaving. 

Cases establish that:

• the date on which the landlord has to prove its intention to do the works is the date of the court hearing (not the, often much earlier, date it first opposes renewal on ground (f));
• the intention to do the relevant works must be genuine (corporate landlords usually prove this with a board resolution to do the work);
• the landlord must have a reasonable chance of being able to carry out the works when the tenancy ends (usually around four months after the court refuses the renewal tenancy). The landlord must demonstrate that, by then, it will have the necessary planning permission, relevant funds and ownership of/access to the site; and
• a tenant cannot complain if a landlord changes its mind, after gaining vacant possession on ground (f), and either alters the proposed works or decides not to do them at all.

In early December, the Supreme Court (S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62) confirmed that the landlord’s motive for doing the work may be relevant. Broadly, if the landlord’s reason for proposing the works is simply to oppose renewal and gain vacant possession (rather than a commercial objective of creating a different/improved building for use or reletting), then it may fail on ground (f), even if it demonstrates genuine intention and ability to carry out such “pointless” works. 

This situation will be rare, as a landlord will only genuinely intend to carry out pointless works where their cost is exceeded by the increased property value or other benefits flowing from gaining vacant possession. In Franses, the landlord opposed a new lease of a ground floor and basement art gallery in its large hotel which it wanted to redevelop. It invoked ground (f), proposing internal works costing £800,000 to divide the gallery into two retail units incorporating other parts of the hotel. No planning consent was needed, the landlord had funding and demonstrated its intention by an undertaking to the court to start work as soon as the tenant moved out and to proceed diligently. 

However, the works would not result in two self contained, usable retail units.  One would only be accessible through the other, the remodelled floor levels were unsuitable, and planning consent was needed (but unlikely) for the change of use. Moreover, the landlord acknowledged, in evidence, that it would not carry out the works at all if the tenant gave vacant possession voluntarily, nor if the tenant was awarded a new lease. In reality the landlord’s only motive for doing the works was to gain vacant possession.  

The court decided that ground (f) was not satisfied because the landlord’s genuine intention to do the works was, in effect, conditional on the court refusing the new lease. The court also hinted that the pointless nature of the works cast doubt on genuine intention.

The moral?

In recent years, there has been a run of cases supporting the right of a landlord to oppose renewal of commercial leases based on plans to carry out works. The successful challenge in Franses is likely to encourage tenants to rigorously scrutinise and challenge a landlord’s plans, when their landlord opposes renewal under ground (f). 

It is a warning to landlords not to take shortcuts in preparing their proposals. Press comment since this decision suggests that the landlord did not want to wait before launching his challenge until he had a proposal for which he would obtain planning permission. If that is the case, he should have waited until genuine proposals were in place. Alternatively, he should have sought a redevelopment break in the lease to finalise plans and obtain planning permission so putting the issue beyond doubt.

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