Post Franses: Landlord successfully opposes lease renewal on redevelopment grounds

The County Court recently held that a landlord had shown the requisite intention to carry out redevelopment works and could therefore successfully oppose the tenant’s claim for a new tenancy pursuant to the Landlord and Tenant Act 1954 (the 1954 Act). This was despite the fact the tenant argued that there were significant obstacles to the landlord carrying out the redevelopment -including the tenant’s plans to seek an injunction in relation to the works.

Ground f

This is the first reported decision in this area following the recent Supreme Court decision in S Franses Ltd v Cavendish Hotel (London) Ltd [2018].

In Franses the Supreme Court held that a landlord could not oppose the grant of a new tenancy 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.

Under Section 30(1)(f) of the 1954 Act ("ground (f)") a landlord can oppose a lease renewal 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 or construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding...".

To satisfy ground (f) a landlord must show that it has a firm and settled intention to carry out the works (the subjective test) and a reasonable prospect of achieving that intention (the objective test). Since the Franses decision it is clear "the landlord's intention to demolish or reconstruct the premises must exist independently of the tenant's claim to a new tenancy". In this current case the judge described the law in the area as having been "significantly altered" by the Franses decision and noted that "[t]he effect of this ruling has been that the landlord's ability to oppose lease renewals has been significantly lessened".

In dispute…

The tenant had four leases of office space at Park West, Marble Arch whose terms all commenced in 2013. Three of the leases were granted for a period of 10 years but the lease of Suite C2 was only granted for a period of five years and it expired in March 2018. The Suite C2 lease was within the protections of the 1954 Act and so continued on a statutory basis. The tenant wished to renew the lease but the landlord opposed the grant of a new tenancy on redevelopment grounds.

The building is a mix of over 500 residential flats, a commercial element and a large double height basement which historically had been a gym. The landlord intended to carry out "intrusive" works to the basement to "maintain the integrity of the building".

The landlord noted that there was "severe damp and corrosion in large parts of the basement which require attention." The landlord also planned to restore the basement to a condition where it could be let on a commercial basis. To facilitate access to the basement the landlord wished to create a new entrance with lift and staircase in the location of Suite C2.

It was agreed between the parties that the works were sufficiently substantial and could not reasonably be undertaken without obtaining possession of Suite C2 and so fell within ground f. The issue before the Court was "whether on the termination of the current tenancy the landlord intends to carry out the C2 works". The judge noted that post Franses "this has to be considered in three ways:-

• (a) first, that the landlord has the requisite subjective intention;

• (b) secondly, whether this assessment can be made by looking at it objectively; and

• (c) thirdly, whether the requirement of intention is made out on the hypothetical Franses basis."

The court again confirmed that the date upon which any such intention is to be assessed is the date of the hearing (Betty's Cafes Ltd v Phillips Furnishing Stores Ltd [1959] AC 20 HL).

The judgment notes that the landlord’s approach to the works changed in response to the litigation. The tenant also described the landlord’s general actions in relation to commencement of the works as "bumbling along" and lacking "commercial get-go" and flagged the difficulties the landlord faced in managing the works to accommodate both the residential and commercial occupiers

The tenant also argued that should the landlord commence these works it would seek an injunction on the basis of the breach of the landlord’s quiet enjoyment covenant contained in its other three leases and derogation from grant. A trespass claim was also threatened on the basis of the landlord’s proposal to erect a hoarding with the tenant’s demise under another lease which the tenant argued went further than the landlord’s qualified right of entry under that lease.

The landlord had already suspended works on the basis of these threats. The tenant’s position was the threat of injunction meant there was a high risk the landlord would not be able to undertake the works either at all or at least not on the termination of the current tenancy as required by ground f. Case law and statute confirm that the works should be commenced within period of 3 months and 21 days following judgment (which is when the tenancy will come to an end following an unsuccessful application by the tenant in respect of a lease renewal) or such other reasonable period as required by law. Interestingly, in this case the judge held that "an appropriate timeframe" for starting the works in this case "would be in the region of six months and 21 days from the date of the judgment".

The tenant’s position was the landlord had no reasonable prospect of overcoming these obstacles.

The outcome

In looking at the three elements to assess whether the landlord intended to carry out the works the judge noted that in relation to the works the landlord "has no difficulty in funding the works; the contracts are in place; there are no difficulties with planning; the timescales for commencement are realistic and they are encouraged to commence due to problems in the basement which need to be resolved.

There is evidence of a subsisting intention (albeit at times the level of activity has changed) for some time". It was also noted that the contract which had been entered into was valued at over £1.6m (and considerable weight was attached to the this), the tenant had conceded the works were not bogus and the landlord had provided an undertaking to the court to do the works, albeit heavily qualified. Further in granting the Suite C2 lease for a shorter term than the others it supported the view that the redevelopment had been contemplated for some time.

Crucially, the judge held that his "simple view" was injunction proceedings would be capable of resolution as would the trespass issue.

It was therefore held that "on balance" held that the landlord had demonstrated the requisite intention to carry out the works.

London Kendal Street No3 Limited v Daejan Investments Limited [2019] 7 WLUK 589