The case of S Franses Ltd v The Cavendish Hotel (London) Ltd was decided in December 2018 by The Supreme Court in London.
The dispute involved a business which occupied part of larger premises under a lease. They were a protected tenant under the Landlord and Tenant Act 1954 ("Act"). They had the right, at the end of their term, to ask the court for a renewal of the lease even if the landlord disagreed. The larger premises were mainly occupied by the Hotel. The Hotel was the landlord and they wanted the leased premises back. The tenant wanted to stay and they activated the procedure to renew their lease.
The case was heard first by the County Court and then appealed to the High Court. In both instances the Hotel was successful. This was not particularly surprising, given that that result accorded with the law under the Act and established practice over a number of years. The Claimant though appealed to The Supreme Court, which is the highest court in the land.
Without quoting section 30(1)(f) of the Act, it provides that the case turned on whether the landlord could show they had the "requisite intention" to carry out redevelopment works which could only be completed by removing the existing tenant. If the landlord could show that they definitely would carry out the proposed redevelopment works and those works were sufficiently comprehensive that they needed to move the tenant out to complete them, then the tenant would have to leave the premises and their lease protection under the Act would be lost.
Previous practice and advice from solicitors and counsel prior to this case was that the landlord needed a clear and settled intention to carry out the redevelopment works and needed to demonstrate to the court that those works would definitely be completed. You would ask your landlord client to obtain planning permissions, secure funding arrangements, settle board minutes and resolutions, hire contractors, order equipment etc all of which should be sufficient to demonstrate to a court that if possession of the leased property was returned to the landlord then the landlord would definitely carry out the proposed works, that those works were significant and that the proposed works could be commenced immediately.
The courts however were concerned that such works might be a sham and were just being undertaken as part of a scheme to remove a tenant who would otherwise have protection under the Act. The landlord therefore would have been well advised previously to throw all necessary (and, to be through, some unnecessary) works into the plans to demonstrate to the court that they were planning a major scheme of works, irrespective of whether those particular development works were needed or not. The emphasis was formerly on the breadth of the works to be undertaken and not on whether those works were actually necessary to redevelop the property in the way the landlord wanted to do it ultimately. In this case the landlord wanted vacant possession for the sake of having an empty property and all the commercial advantages that can bring. Their proposed scheme of works had no practical benefit for them other than it satisfied ground F under the act and it achieved that objective.
The law has now changed after this case. The court will now apply what is now known as acid test to look at the landlord's true intentions. In simple terms, the court will ask themselves (and, no doubt, ask the relevant witnesses under cross examination) why these works are being done in this instance and, crucially, would these same works be done if the tenant was not there. If the landlord would say that they would not carry the works out if the tenant was not there because they would do something different, the landlord would now be unsuccessful in its claim (as indeed was the Hotel was ultimately in this case in The Supreme Court) and the tenant's rights will be recognised. They will be given a new lease. This is despite the fact that the landlord would have had a clear and comprehensive intention to carry out substantial works to the property and they needed the property back in order to do that.
This is a significant change in practice. It will have a significant effect both terms of the law in this area and how landlords (and by implication, tenants) should now move forward. The previous advice to a landlord would have been to throw as many works as conceivably possible into the mix to try to demonstrate a clear and settled intention. Previous advice to tenants would have been to wait to see if the landlord could demonstrate they had a clear and settled intention to do the works and proceed from there. This case will have a major effect on cases which are currently running (where landlords perhaps now need to seriously reconsider their position following this decision) and how the law will be interpreted going forward. It increases the rights for tenants in this area to question what their landlord is doing and whether the proposed works are really necessary.
Opposed lease renewals are now likely to become more lengthy and costly. This new test is objective by its nature and much will depend upon the credibility of the landlord's witnesses when giving evidence. Any proposed schemes of work which appear to the court to be excessive or of little practical benefit to the landlord are now likely to come under much greater judicial scrutiny than before. Landlords should think carefully therefore before commencing schemes where the main motivation will simply be to obtain vacant possession of the property.
In a sense it is surprising that the Landlord and Tenant Act 1954 has remained in force for so long and largely in an un-amended form. In a sense it looks back to a bygone era when a tenant would make a long-term commitment to a property and where they needed a degree of security as a consequence. Now, in the age of the internet and Amazon, the position is more fluid. Companies are now used to a more flexible working environment and for leases to be more short-term. In a sense also it is perfectly logical for the Act, which is meant to be protecting tenant's rights should not be subverted by the landlord's statement that they intend carrying out comprehensive works to a property, some of which they really do not need to do and which are only being done to remove a particular tenant. It is logical that the court should then question that motive. For landlords it will become more difficult to get rid of certain tenants. They will need to be advised carefully as to how to plan going forward. Whether this leads on in due course to further reform of the Act will need to be seen, but it is possibly now overdue in the present market.
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Michael is head of our Dispute Resolution Team, with over 25 years' experience in litigation work., specialising in property litigation.