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Landlord not entitled to block lease renewal on redevelopment grounds

The UK's highest court has blocked an attempt by a commercial landlord to oppose a tenancy renewal on the grounds that it was seeking to redevelop the property.06 Dec 2018

The 1954 Landlord and Tenant Act sets out the seven grounds on which a landlord can refuse a tenant's application to renew its lease at the end of its tenancy including, at ground (f), reconstruction or demolition works that it "could not reasonably" perform without obtaining possession. The Cavendish Hotel had sought to rely on ground (f) to oppose an application for a new tenancy by its tenant, textile dealership S Frances Ltd.

Cavendish admitted that the main reason for the works was to evict the tenant. However, it genuinely intended to carry out those works if that was what was necessary to refuse the new tenancy. The county court therefore found that, on the basis of that genuine intention, ground (f) was made out. The High Court agreed, but gave permission for the appeal to be 'leap frogged' to the Supreme Court.

The Supreme Court has unanimously allowed the appeal. Lord Sumption, giving the leading judgment, agreed with the lower courts that the landlord's motive and purpose in carrying out the proposed works is irrelevant for the purposes of ground (f). However, neither the landlord's motive and purpose, nor the "objective reasonableness of its proposals", were at issue in this appeal, he said.

"The entire value of the works proposed by this landlord consists in getting rid of the tenant and not in any benefit to be derived from the reconstruction itself," he said.

"The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily. On the facts found by Judge Saggerson [in the county court], the tenant's possession of the premises did not obstruct the landlord's intended works, for if the tenant gave up possession the landlord had no intention of carrying them out. Likewise, the landlord did not intend to carry them out if the tenant persuaded the court that the works could reasonably be carried out while it remained in possession," he said.

He concluded that a "conditional" intention of this kind was "not the fixed and settled intention that ground (f) requires".

"The answer would be the same if what the landlord proposed was a demolition, conditionally on it being necessary to obtain possession from the court," he said.

Lord Sumption conceded that this meant the possibility of the landlord's motive and purpose being investigated at trial, whether "as evidence for the genuineness of his proposed intention to carry out the works" or "as evidence of the conditional character of that intention".

"In both cases, the landlord's motive and purpose are being examined only before inferences may be drawn from them about his real intentions," he said.

While admitting that it would be "unworldly" for the courts to ignore the possibility that the judgment would result in landlords concealing evidence of whether their intention to carry out the works was genuine, Lord Sumption said that they could not "decide an issue of statutory construction on the assumption that landlords will withhold the truth from the court on an application for a new tenancy".

"We have to proceed on the footing litigants are honest or, if they are not, that they will be found out by the experienced judges who hear these cases," he said.

Nevertheless, property disputes expert Rhiannon Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that the decision raises the valid question of what the position would be if the landlord concealed their true intention not to carry out works if the tenant left voluntarily.

"Whilst it is reasonable to conclude from the comments of the Supreme Court that a dishonest landlord will be found out, there is still scope for landlords to succeed in ground (f) claims where their primary motivation is to remove a tenant," she said.

"In order to do so, however, they must be able to satisfy the court that they have a genuine intention to carry out the proposed works – such works being sufficient to satisfy the ground (f) requirements – even if the tenant left voluntarily, which could be a very important and useful tool for landlords, albeit expensive. It is therefore likely that evidence of the landlord's purpose or motive will be used in order to test the genuineness of a landlord's assertion," she said.