Landlord’s intention to redevelop…or not


Author: Tim Foley


Tim Foley, Partner, Fladgate LLP (tfoley@fladgate.com)


 

The American philosopher, Ralph Waldo Emerson, once said “Once you make a decision the universe conspires to make it happen”.  Since he died in 1882 he can be forgiven for not knowing anything about the Landlord and Tenant Act 1954, but in any event the Supreme Court has concluded in S Frances Limited v The Cavendish Hotel (London) Limited that his aphorism is incorrect.

The case concerned lease renewal proceedings brought by S Frances Limited a business tenant of premises on Jermyn Street in London. The tenant had served a notice requesting a new lease and the landlord served a counter notice opposing renewal on the basis of section 30(1)(f) of the Landlord and Tenant Act 1954 (commonly known as “ground (f)”), namely that the landlord had an intention to redevelop/reconstruct the premises.  This is all very common but the twist in this case was that the landlord intended to carry out the works in question only if the tenant remained in situ and not otherwise.  The scheme of works drawn up by the landlord (costed at approximately £775,000) was sufficiently disruptive that they could not be done without securing vacant possession, but the work themselves were of no particular commercial use or benefit to the landlord.  In fact the scheme of works was a device to secure vacant possession; in essence the landlord was buying out the tenant’s statutory protection.   When the case was tried in Central London County Court the landlord was disarmingly honest about all of this in evidence.

The County Court judge made a finding of fact that the landlord’s intention to carry out the works was genuinely held (indeed the landlord gave an undertaking to the court to execute the works) and therefore declined to grant a new lease.  On appeal the High Court agreed and granted permission for a “leapfrog” appeal to the Supreme Court on the basis that a visit to the Court of Appeal would be pointless, as the basis of the decisions were made upon existing House of Lords authority which would bind the Court of Appeal.

The Supreme Court allowed the tenant’s appeal and declared that the intention to carry out the works was insufficient for the purposes of ground (f) and thus that the tenant should be granted a new lease.  The Court said that while it was accepted that the landlord genuinely held an intention to carry out the works that intention was conditional, the condition being the on-going presence of the tenant.  The Court said that the landlord’s intention must be formed independently of the tenant’s right to a new lease and not arise because of it.   Since the works in this case were not going to be carried out if the tenant left voluntarily it could not be said that the landlord’s intention was of a quality that ground (f) requires, due to its conditional nature.

This represents a significant extension of the current law.  Hitherto, provided that the works were genuinely intended and deliverable, then the Court would not enquire into the commercial point of their works or, indeed, the utility to the landlord as these issues were irrelevant for the purposes of ground (f).  If the landlord wished to carry out the works then the motive for so doing was neither here nor there.   This has now changed.  Now the Court has to be satisfied that the works will actually be done, even if the tenant were to leave voluntarily.   There is now much greater scope for investigation into the landlord’s motive to carry out the works, something that the court would not have permitted previously, as an irrelevant consideration.

While it was always the case that landlords would be closely cross-examined at trial about works that would perhaps have marginal benefit, that cross examination was always directed at the genuineness of the landlord’s intention to carry out the works.  Following the decision in Frances it does not matter how genuinely the intention is held, if the landlord’s motive is to get rid of the tenant rather than carry out the works, then the landlord will now fail when before a new lease would have been refused.

Returning to matters of philosophy, Seneca the Younger observed “A gift consists not in what is done or given, but in the intention of the giver or doer”.  Obviously he was referring to business tenancies and the Supreme Court agrees; Seneca plainly understood section 30(1)(f) much better than all of those lawyers that have grappled with it since 1954.

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