Redeveloping intention: the intention to redevelop
5 December 2018
In this article, Michael Ellis, a senior associate in Wilsons property and commercial litigation team, comments on the Supreme Court's judgment in the case of S Frances Limited -v- The Cavendish Hotel (London) Limited
Under the Landlord and Tenant Act 1954 ("the Act") a tenant of premises occupying under a business tenancy has security of tenure. Accordingly, at the end of the lease, the tenant is entitled to a new lease (the terms of which are set by the court in default of agreement) unless the landlord successfully relies on one of the small number of statutory grounds of opposition. , One of the most commonly used is ground (f) (that the landlord intends to demolish or reconstruct the premises or a substantial part of the premises, or to carry out substantial work of construction and that he could not reasonably do so without obtaining possession of the holding).
Since the Act is silent on the nature and scope of 'intention', it has fallen to the courts to interpret and refine this meaning. It has been well established for decades that for a landlord to be able to satisfy this ground, he must show "a firm and settled intention" to carry out the works on the termination of the current tenancy.
However, until now, there has been no authority on whether a landlord can satisfy the "intention" test if the sole purpose of carrying out the works would be purely to obtain possession of the premises from the tenant.
Today, the Supreme Court handed down the long-awaited decision in the case of S Frances Limited v The Cavendish Hotel (London) Limited (UKSC 2017/0151). This is an important case which examines whether a landlord, who opposes a tenant's request for a new lease under ground (f), may satisfy the intention test where the sole purpose of carrying out those works is to obtain possession from the tenant.
The facts of this case are simple and are as follows. The Cavendish Hotel (London) Limited occupied 80 Jermyn Street in central London. These were valuable premises and the landlord wanted to regain possession on expiry of the tenant's lease. When the tenant served notice requesting a new tenancy the landlord served a counter notice relying upon ground (f) (premised on the landlord intending to carry out redevelopment). The landlord had prepared a detailed scheme of proposed works, which would cost it circa over £1m in redevelopment fees and compensation. It was no secret, however, that the proposed scheme of works had little practical utility and that the purpose of the works, and therefore the motive behind relying upon ground (f), was to enable the landlord to obtain possession.
The tenant did not want to vacate and therefore commenced proceedings for a new lease. The issue for the court to consider was whether the landlord had a firm and settled intention to carry out the works, when the sole purpose of the works was to obtain possession. In other words, the landlord sought to rely on the statutory ground of redevelopment as a mechanism to obtain possession even though it otherwise (had the tenant left voluntarily) would not have carried out the works.
Following various appeals (from the county court to the High Court, and then a leap-frog appeal to the Supreme Court), the Supreme Court unanimously found for the tenant.
In the leading judgment by Lord Sumption, the court concluded that the landlord cannot rely upon ground (f) where the motive behind such reliance was the eviction of and possession from the tenant. The landlord's intention to carry out the works must be independent from and not conditional upon whether the tenant will give up possession voluntarily.
The court distinguished this from the situation where a landlord can demonstrate a firm and settled intention to carry out works which may be uncommercial; the reasonableness is irrelevant if the landlord nevertheless would always have carried out the works irrespective of the tenant vacating voluntarily.
Michael Ellis sums up: What are the practical points to take from this? Landlords who intend to invoke ground (f) purely as a mechanism to obtain possession must now tread very carefully. To succeed they will need to show a firm and settled intention to obtain possession exists independently of the tenant's occupation of the premises. If there are inconsistencies (which may well come out in the wash during disclosure), and the landlord is unable to explain these, an application for possession may well fail.
If you have any questions raised by Michael's article, please contact us for an informal and confidential chat.