A loss of protection for business tenants?

A loss of protection for business tenants?

A tenant who occupies premises for the purposes of a business has for many years enjoyed the protection of the Landlord and Tenant Act 1954. The Act provides that, unless the tenant vacates the premises voluntarily, a business tenancy will not come to an end simply because the contractual term granted by the lease has ended. Instead, the tenancy will continue until either the landlord or tenant serves a specific form of notice under the Act. It is possible for the lease to be excluded from the protection of the Act but only where the strict requirements for doing so are complied with prior to the lease being entered into.

When a landlord gives notice to end a business lease, the tenant has a right to claim a new lease and the landlord can only defeat the tenant’s claim if it can satisfy one of a number of grounds set out in the Act. One of the grounds most commonly relied upon by landlords wishing to recover possession from their tenants is ground “(f)” under which the landlord has to show that it intends to demolish, reconstruct or carry out substantial works of construction to the premises and cannot reasonably do so without obtaining possession.

Ground “(f)” has always been a fertile ground for dispute between landlord and tenant, particularly in circumstances where a tenant suspects that its landlord is using this ground to end the tenancy in circumstances where the landlord does not really have any genuine intention of carrying out the work that it says it plans to do. Such disputes tend to take the form of the landlord swearing blind that it has all sorts of grand redevelopment plans which it couldn’t possibly carry out whilst the tenant remains in occupation, whilst the tenant argues that the landlord does not really intend to do the work or that it has no realistic prospect of obtaining the planning permission or finance that would be required. The courts have generally always accepted that it is not the purpose of the Act to stand in the way of an owner’s genuine commercial interest in redeveloping its property and, in terms of the evidence required to prove the landlord’s intention, the bar has never really been set very high. However, it has always previously been understood that the landlord must at least satisfy the court that it does have a genuine interest in carrying out the work.

It is for this reason that the decision in the recent case of S Franses Limited v The Cavendish Hotel Limited was so surprising. The Hotel, which was the landlord in this case, was opposing its tenant’s claim for a new lease on ground “(f)”. However, what was unusual about this case was that the landlord openly admitted that the scheme of work that it was relying upon had been devised purely so as to satisfy the requirements of ground “(f)”. The work, if completed, was of no commercial or practical benefit to the landlord, whose sole motivation was to get rid of its tenant. The landlord admitted that it would not carry out the work if the tenant left voluntarily. So here we had the landlord openly admitting what tenants in similar cases over the years had frequently struggled so hard to get the court to accept; namely that the landlord had no genuine interest in doing the work, it was simply using ground “(f)” as an excuse to get rid of its tenant.

Perhaps rather surprisingly, the court decided that the landlord’s motive was irrelevant and that, as long as it genuinely intended to carry out the work, even if for the sole purpose of recovering possession from its tenant, the ground was satisfied. This decision has serious implications for the property sector as the protection afforded to tenants by the Act would seem to be completely undermined if the landlord can simply devise a scheme of work purely so as to satisfy the requirements of ground “(f)” and defeat the tenant’s claim. It is understood that this decision may yet be the subject of a further appeal and there will no doubt be many business tenants keeping their fingers crossed that it succeeds. In the meantime, for the time being at least, the position of landlords wishing to obtain possession from their business tenants is strengthened.

Keith Songhurst – Partner
Birkett Long LLP
01245 453821