A Supreme Court decision impacts the way commercial landlords have been using building works and redevelopment to terminate a lease renewal.

The Supreme Court has allowed an appeal in the case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62; a decision that will have a significant impact on the way commercial landlords and tenants behave in regards to the termination of a business tenancy, in relation to section 30 landlord and tenant act 1954.

The decision crucially alters the legal expectations of a landlord, regarding their intention to develop under s30(1)(f) of the Landlord and Tenant Act 1954 (LTA 1954). The crux of the decision is that a landlord’s intention to redevelop the property must not depend on whether the tenant decides to apply for a new tenancy. Lord Sumption, highlights an “acid test”, which is whether the landlord would intend do the same works if the tenant left the premises voluntarily.

Background of the case

S Franses Ltd, the tenant, a textile dealership and consultancy that specialises in antique tapestries and textiles, occupied the ground floor and basement of 80 Jermyn Street. The Cavendish Hotel, the landlord, occupied the rest of the building.

Under the existing law, a business tenancy which is protected by the LTA 1954 does not expire automatically on the conclusion of any contractual term. Instead, a LTA 1954 tenancy grants tenants security of tenure; in that the tenancy continues following the conclusion of the term and that the tenant has a statutory right to renew the tenancy. However, the landlord has the option of terminating the ongoing tenancy and opposing the renewal of the tenancy by utilising a valid s25 notice.

In order to serve a valid s25 notice, a landlord must rely on one of the grounds found in s30(1) of the LTA 1954. These include s30(1)(f) , which states that a landlord can oppose the renewal of a lease if “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 that he could not reasonably do so without obtaining possession of the holding.”

Landlord needed to show a firm and settled intention to carry out the works

Existing case law highlighted that the landlord needed to show a firm and settled intention to carry out the works mentioned and to have a reasonable prospect of carrying out such an intention.

In this case, the tenant applied for a renewal of their lease of the premises, which was opposed by the landlord under s30(1)(f). Unusually, the landlord admitted that there was no practical purpose behind the works they had proposed. Instead, as the landlord admitted, the works were purely proposed in order to satisfy s30(1)(f) and to remove the tenant from the premises.

The question asked of the Supreme Court, was therefore to decide whether the landlord could oppose the granting of a new tenancy under s30(1)(f), if the works proposed were only to be undertaken in order to remove the tenant and would not be carried out, if the tenant left the premises voluntarily.

Court unanimously decided  tenant should be granted a renewal of their lease

The court unanimously decided that the tenant should be granted a renewal of their lease and that the landlord could not oppose the renewal on the terms mentioned above.

The court highlighted, that motive in of itself is not a relevant test under s30(1)(f) . However, if the landlord’s sole motive for carrying out the works is to remove the tenant, then this can be regarded as evidence that the landlord did not have the requisite firm and settled intention to carry out the relevant works, to meet s30(1)(f) . A landlord’s intention to carry out any works must be unconditional and not based upon whether the tenant is leaving the premises or not.

In this case, The landlord’s rather arbitrary works were designed to purely remove the tenant from the premises. The landlord themselves admitted that the works would not have been undertaken had they not been required to get the tenant to leave the property. As such, the landlord did not meet the requirements of s30(1)(f) and could not successfully oppose the renewal of the tenancy.

Commercial landlords take heed

From this point on, landlords will have to be more careful in their utilisation of s30(1)(f) in opposing lease renewals for business tenants. They will have to make sure and make clear that any proposed works will be undertaken regardless of whether or not the tenant leaves any premises voluntarily. Any intention to undertake work needs to be unconditional.

The decision of the Supreme Court has prevented landlords from presenting a bare minimum of works to the tenant and requiring them to leave without any hope of a challenge. The court has given tenants more of an opportunity to challenge such works and ensured greater scrutiny of any proposals. Landlords may need to consider whether another ground under s30(1) may be more appropriate for their case, if they do not feel confident that they can meet Lord Sumption’s acid test.

Mike Davies is a Partner in our Disputes team.  If you would like to discuss the above article in more detail or any other dispute enquiry, please contact the team on 01392 210700 or email drx@stephens-scown.co.uk