Termination of protected business tenancies – Supreme Court ruling

A recent Supreme Court decision may result in an increase in contracted out tenancies. Coodes Solicitors’ Commercial Disputes Associate Abi Lutey discusses why landlords, who are seeking to recover possession of a commercial property should not attempt to manufacture a ground to oppose renewal.

Part II of the Landlord and Tenant Act 1954 states that a tenant who leases a property for the purpose of his business will be protected and have the right to renew the tenancy at the end of the lease.

The landlord and the tenant can agree to contract out of this right, however, if they don’t terms must be agreed for a fresh lease or the renewal opposed by the landlord at the end of the lease term.

There are seven grounds on which a renewal can be opposed which are set out in Section 30 (1) of the Landlord and Tenant Act 1954.

These are:

1. Breach by the tenant of his repairing obligation
2. Persistent delay in paying rent
3. Other substantial breaches or any other reason connected with the tenants use of, or management of, the property
4. Offer of suitable alternative accommodation
5. Sub-tenancy of part
6. Demolition or reconstruction; or
7. The landlord’s intention to occupy.

Grounds d, f and g are mandatory grounds, which attract statutory compensation payable to the tenant.

Most commonly a landlord will seek to use ground f to oppose the renewal of a lease.

A landlord previously only had to have the intention to redevelop or demolish, which was only required to be proven at the date of the court hearing as well as demonstrating a reasonable practical ability of carrying out the work.

However, a recent Supreme Court ruling in the case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] means that a tenant is now more secure when faced with a potentially contrived plan for redevelopment by the Landlord in an attempt to recover possession of the property.

In S Franses Ltd v The Cavendish Hotel (London) Ltd [2018], it was clear that the landlord’s intention was to recover possession. Not only was the tenant’s request for renewal opposed, the tenant was also served with a notice for alleged breaches of covenant.

A County Court ruling refused to allow the tenant a fresh tenancy as the landlord had a ‘firm and settled intention to redevelop’. This decision was made despite a director admitting that the proposed works were not financially viable and if the tenant left voluntarily, they would not be carried out.

Although the High Court upheld the County Court ruling, Mr Franses was permitted to go straight to the Supreme Court, which ruled that a landlord’s intention to demolish or reconstruct must exist independently of a tenant’s statutory claim to a tenancy.

Mr Franses’ request for a fresh tenancy was, therefore, successful.

This will mean that a landlord’s opposition to lease renewal which is reliant on demolition or redevelopment (ground f), will now be scrutinised more closely. The Courts will be particularly looking to establish if the works would still be carried out if a tenant left the property.

For more information or advice on these issues, please contact Abi Lutey in the Commercial Disputes team on 01872 246200 or abi.lutey@coodes.co.uk