Sainsbury's Supermarkets Ltd v Medley Assets Ltd [2024]

Summary

Sainsbury's has successfully defeated their landlord in its opposition to the grant of a new tenancy, by vacating parts of the premises affected by the landlord's redevelopment works, just a week before trial.

The facts

Sainsbury's are the tenant of supermarket premises on Kentish Town Road. The demised premises includes ground, upper and basement floors, however, only the ground floor is occupied.

Sainsbury's landlord, Medley Assets, served notice under section 25 of the Landlord and Tenant Act 1954 (the Act), terminating Sainsbury's tenancy on the grounds that it intended to redevelop the premises, as provided for in section 30(f) of the Act:

“that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding.”

Initially, Medley's plan was to covert the upper floors into flats. However, by the point of trial, it instead proposed to lower the basement floor and widen the staircase between the ground floor and upper floors, with a view to redeveloping the upper floors into office space.

As Sainsbury's only occupied the ground floor of the premises, their business would have been largely unaffected by the landlord's works, other than a storage area of around 26m2.

The week before trial, Sainsbury's vacated this storage area, so that it only occupied space which would not be affected by the landlord's proposed works.

The decision

The "Holding"

At trial, Medley argued that the "holding" relevant for the purposes of ground (f) should be the entire premises demised under the lease. However, the Act defines the 'holding' as any part of the demised premises which is actually occupied by the tenant for the purpose of carrying out its business.

Medley therefore sought to rely on section 32(2) of the Act, which requires the tenant to take a tenancy of the whole of the demise in the existing lease. Sainsbury's argued that section 32(2) would only be relevant at the second hearing when it came to determine the terms of the new tenancy.

The judge agreed with Sainsbury's and held that the landlord could not prove an intention to redevelop the holding, on the basis that the holding for the purposes of ground (f) is limited to the areas actually occupied by the tenant at the time of trial, even where a new tenancy would be of a larger part, or the whole, of the premises demised by the lease.

Intention

Even where the holding had related to the whole demise, the judge found that the landlord did not have a "genuine and settled intention" to carry out the redevelopment proposed.

The reasons provided for this were that the works had only been conceived after service of the section 25 notice and, on detailed inspection of the documents, did not appear to be viable. The judge also held that the landlord did not seem to have any intention of actually going through with the works, having initially refused to give an undertaking to carry out works, but later offering this at trial.

Expert evidence

The judge decided that the landlord's expert building surveyor was "unreliable" and "unaware of his duties to the court". In particular, his expert report contained a multitude of errors (84 in total), for which he blamed his secretary. The judge instead favoured the tenant's expert whose opinion was that the works were not viable, or alternatively, could be carried out with Sainsbury's in occupation.

Substantial works

Finally, the judge held that the works proposed were not substantial works of construction, reconstruction or demolition as required by ground (f).

Our comment

The decision highlights interesting tactics that a tenant can adopt in opposed lease renewal claims such as this. Namely that the tenant can vacate the part of their demise affected by the landlord's works before the ground (f) trial, and then re-occupy before the trial determining the terms of the new tenancy.