Opposing renewal: no more farcical "redevelopment"!

Summary: S Frances Limited v The Cavendish Hotel (London) Limited [2018] UKSC 62

In this case, a landlord opposed the grant of a new business tenancy to its tenant on the ground of redevelopment. It was accepted that the landlord's scheme was contrived in order to satisfy the statutory provisions entitling the landlord to oppose renewal and that there would be no practical use for the premises once the works had been carried out.

The tenant obtained permission to "leapfrog" the Court of Appeal as the landlord's submissions and the County Court and High Court decisions were based on Court of Appeal and House of Lords authorities. To have a final decision, it was necessary to have the issue considered by the Supreme Court.

The Supreme Court reversed the County Court and High Court decisions, and held that the landlord did not have the necessary intention for the purposes of the Landlord and Tenant Act 1954. The reality was that the landlord would not actually carry out the works if the tenant vacated voluntarily or if the tenant succeeded in demonstrating that the works could be carried out with the tenant in occupation.

The facts

The tenant occupied premises opposite Fortnum & Mason in St James's. Its premises formed part of a building operated as a hotel. The tenant operated a textile dealership, a use which was specifically promoted by Westminster City Council. Planning permission would be required for any change of use.

The tenant occupied the premises under two leases, both of which expired on 2 January 2016. The tenant served notices requesting that a new business tenancy be granted, which the landlord opposed on the ground set out in Section 30(1)(f) ("Ground F") of the Landlord and Tenant Act 1954, often referred to as the "redevelopment" ground. The main points to note about this ground are that the works must be sufficient, have some structural elements and cannot be carried out without obtaining possession of the premises.

The landlord devised various schemes to justify its ground for possession. However, it became clear that planning permission for its most recent scheme would not be granted and, therefore, the planning application was withdrawn.

The landlord then devised a new scheme for internal works, but which would not need planning permission except for change of use in due course. It was clear on the evidence that this scheme was contrived simply to satisfy Ground F.

For example, the works included:

• the artificial lowering of the basement floor slab
• the repositioning of a smoke vents
• the demolition of an internal wall at ground floor level and immediately replacing it with a similar wall, and
• constructing a new central wall dividing the two proposed units 2 metres short of the shop front to avoid the need for planning permission.

The landlord accepted in cross-examination that these works would not actually be carried out if the tenant left voluntarily or if the tenant demonstrated that the works could be carried out whilst it continued trading. However, the landlord was clear that if the landlord was successful in the proceedings, the works would be carried out and a written undertaking was provided for that purpose.

The County Court and High Court found for the landlord, given that it clearly intended to do the works if possession was ordered. It did not matter that the works did not serve any commercial purpose and that the scheme was motivated simply to satisfy Ground F. What was important was that the works were to be carried out if possession was ordered.

There were other grounds of appeal but the intention issue was the main point. Given the parties were relying on existing House of Lords and Court of Appeal authorities, the case was referred directly to the Supreme Court for a final decision.

The appeal

The Supreme Court accepted that the landlord had an actual intention to do the works but noted that it was in fact conditional on the court ordering termination of the tenancy. The conditionality was not in itself fatal but it was the nature of the condition which was objectionable, namely that the landlord would only do the works if the court ordered that the current tenancy should be terminated.

The Supreme Court held that the acid test was whether or not the landlord would do the works if the tenant left voluntarily. In this case, it was clear that the landlord would not do so. Similarly, the landlord would not do the works if the court held the works could be carried out whilst the tenant remained in occupation. The Supreme Court held that this not constitute a "fixed and settled intention" which Ground F requires.

Our comments

Understandably, this case has been watched closely by landlords and tenants alike. It must be correct that landlords should obtain possession if they genuinely wish to redevelop and the works are sufficiently substantial. However, it must also be correct that business tenants are entitled to protection from landlords who do not really have the need or real intention to do such works other than for the reason of obtaining possession. That is not in the spirit of the security of tenure afforded to business tenants by the Landlord and Tenant Act 1954, which is still effective in encouraging investment by tenants in their businesses.