Opposing a 1954 Act lease renewal on redevelopment grounds: a firm and settled intention

​A look at the recent Supreme Court decision of S Franses Ltd v Cavendish Hotel (London) Ltd [2018] UKSC 62.
  • Submitted 21 December 2018
  • Applicable Law UK (England & Wales)
  • Topic Real Estate

The Supreme Court has held that a landlord could not oppose the grant of a new tenancy under the Landlord and Tenant Act 1954 (the 1954 Act) on redevelopment grounds, where the works which the landlord intended to carry out had no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.

Background

S Franses Ltd (S Franses) is a textile dealership and consultancy. It is the tenant of premises on the ground floor and basement of 80 Jermyn Street. Their landlord, Cavendish Hotel (London) Ltd (Cavendish), occupies and manages the rest of the building as a luxury hotel.

S Franses held an underlease which expired on January 2016. It benefitted from the protections of the 1954 Act and the statutory right to renew. Cavendish opposed the lease renewal under s.30(1)(f) of the 1954 Act, which permits a landlord to oppose a renewal on the following basis:

"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 or construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding...".

The works proposed by Cavendish were estimated to cost in excess of £750,000 and it was common ground that they had “no practical utility”. Indeed, they included a new retail unit which had no direct access from the street.

Cavendish confirmed that the scheme of works was devised purely to obtain vacant possession. Cavendish would do the works if they were necessary in order to get rid of the tenant, but they did not intend to carry them out if the works were not necessary to achieve that (i.e. if S Franses agreed to leave) or if the scheme of works would not result in the tenant leaving (i.e. they could be carried out with the tenant remaining in place, meaning that the tenant would therefore be granted a new lease).

Both the County Court and the High Court found that Cavendish genuinely intended to carry out the works (indeed, it had given the Court an undertaking to do so) and that ground (f) was made out. However, permission was given for a leap-frog appeal to the Supreme Court.

The outcome

The Supreme Court found in favour of S Franses, who will now be granted a new lease.

The Supreme Court held that the landlord’s right to obtain vacant possession at the end of the term was not in itself an interest protected by section 30 and noted that, where the parties have not agreed to contract out of statutory protection under the 1954 Act, the right to vacant possession on the part of the landlord is in fact the very interest that Part II of the 1954 Act is designed to restrict.

When a landlord is looking to regain possession on redevelopment grounds under s.30(1)(f), the Supreme Court noted that:

“the touchstone of ground (f) is a firm and settled intention to carry out the works. The landlord’s purpose or motive are irrelevant save as material for testing whether such a firm and settled intention exists”.

The appeal therefore turned on the nature or quality of the intention that ground (f) required.

The Supreme Court identified that the acid test was whether “the landlord would intend to do the same works if the tenant left voluntarily” and concluded that “the landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim”.

In this case the Supreme Court found that Cavendish did not have a fixed and settled intention of the type ground (f) required; if S Franses left voluntarily, or the works could be done with S Franses remaining in possession and being granted a new tenancy, Cavendish had no intention of carrying them out. The Supreme Court was not persuaded by an argument that, in future, landlords would be less honest about their intentions than Cavendish had been, and noted that, even if they were, they would be found out by experienced judges.

The Supreme Court noted that there may be difficulties where a scheme involves a mix of works, some of which are unconditional and others that are dependent on whether or not the tenant leaves voluntarily. The Court concluded that the outcome in such a situation would depend on the precise facts but was likely to be resolved by reference only to the works which the landlord intended to carry out unconditionally.

The Supreme Court also confirmed the established position that the question of whether the landlord had the requisite intention to enable the grant of a new tenancy to be resisted under section 30(1)(f) of the 1954 Act had to be determined by reference to the landlord’s intention at the time of the hearing, not at any earlier date.

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