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Insecurity of Tenure: High Court ruling threatens commercial tenancy’s statutory right to renewal

Terraced Houses and Colourful Shopfronts Print publication

05/10/2017

In July 2017 the High Court ruled, in S’Franses Ltd v The Cavendish Hotel (London) Ltd [1], that a landlord’s right to oppose a protected commercial tenant’s statutory right to renew on the grounds that the landlord intends to redevelop the premises remains unfettered even if the motive for the said redevelopment is to evict the tenant and obtain vacant possession. The landlord’s motive in carrying out a redevelopment of the premises was determined to be irrelevant, leaving commercial tenants in prime locations potentially vulnerable to landlords looking to maximise their property’s investment potential and value.

Landlord’s statutory right to oppose a lease renewal

Where a commercial tenant’s lease is protected under Part II of the Landlord and Tenant Act 1954 (the 1954 Act), in order to oppose the tenant’s request for a lease renewal, the landlord must establish one of the prescribed statutory grounds for possession. The relevant ground here is section 30(1)(f), which allows a landlord to oppose the grant of a renewal lease on the basis that the landlord intends to redevelop the premises, and it could not reasonably do so without obtaining possession.

The facts of the case

The premises, a prestigious London location, were occupied by the tenant, S’Franses Ltd, for 25 years. The tenant had the benefit of security of tenure and had served a request for a renewal lease under section 26 of the 1954 Act, specifying a commencement date for the new tenancy. The landlord then served a counter notice opposing renewal on the basis of ground (f). The tenant issued court proceedings for the grant of a new tenancy.

The County Court was satisfied that the landlord had satisfied the above test, and so ruled in the landlord’s favour. The tenant appealed to the High Court, submitting that:

  1. The landlord did not have the requisite intention to develop the premises – it only intended to regain possession of the property. The landlord had not applied for planning permission for the change of use of the property, nor sought the consent of the superior landlord; and
  2. On this basis, the landlord’s intention was conditional upon termination of the tenancy, and not “firm and settled”, as it should be to satisfy the legal test;
  3. (Notwithstanding the intention, the landlord could carry out some of the development work with the tenant remaining in situ, utilising the landlord’s current rights under the lease. The lease could be varied to accommodate any further rights required.)

The High Court’s decision

The High Court affirmed that the key consideration is determining what the landlord proposes to do; and whether the landlord intends to do it. Why the landlord is choosing to develop the premises is not relevant. As such, the tenant’s submission as to the landlord’s motive was rejected.

The High Court also rejected the tenant’s proposal to vary the lease, as it considered that this would render the premises substantially unfit for the purposes for which it was let, putting the landlord in breach of the implied covenant not to derogate from grant.

The landlord provided an undertaking to the court to carry out the works within 12 months of the termination of the tenancy. This, together with the landlord’s factual evidence, enabled the High Court to reject the tenant’s application for a new tenancy.

WM Comment

The principles considered in this case are not new and no new law has been created. However the potential loop-holes in the 1954 Act have been brought into focus and the 1954 Act can be vulnerable to sharp practice. Ultimately, the High Court has sent the claim back to County Court for further findings of fact, and we understand that the tenant is planning a further appeal, which may be leapfrogged to the Supreme Court. Walker Morris will monitor and report on any developments.

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[1] [2017] EWHC 1670 (QB)

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