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Stewart Gregory

Partner - Brighton & Hove

3rd September 2019

The legacy of S Franses in disputed Landlord and Tenant Act renewals

In December 2018 the Supreme Court gave judgment in a case that, at the time, was described as “arguably the most important landlord and tenant case for decades”. The case, S Franses Ltd v The Cavendish Hotel (London) Ltd, was important to both landlords and tenants, as it examined a tenant’s rights to a new lease when opposed by a landlord’s right to recover the property for redevelopment.

Landlord and Tenant Act

By way of recap, the Landlord and Tenant Act 1954 gives business tenants who remain in occupation at the end of their contractual lease term (and provided that the provisions of the Act have not been “contracted-out” of their lease) the right to request a new lease. The landlord can only oppose that right to a new lease on certain statutory grounds laid down in the Act.
One of those grounds is that the landlord intends to “… demolish or reconstruct the premises … or a substantial part … or to carry out substantial work of construction … that he could not reasonably do so without obtaining possession …” (Ground (f)). This is designed to allow the landlord to recover the property if it intends to redevelop it and cannot do so with the tenant in-situ.

Opposing a lease renewal

Landlords often use Ground (f) if they wish to oppose a lease renewal and it has therefore generated much case law over the years. The cases have decided that landlords need to show that they have a reasonable prospect of being able to carry out the redevelopment and that they have a “firm and settled” intention to do so.

Then in 2018, the S Franses case added a further obstacle for landlords. Following this case, not only does the landlord’s intention have to be “firm and settled” but now must also be “unconditional”.

The S Franses case

The facts of the S Franses case are unusual. The case centres on the tenant’s accusation that the landlord’s scheme of remedial works for the property had been designed with the sole aim of using Ground (f) to refuse the tenant a new lease.

Evidence in the case established that the landlord did not genuinely intend to carry out the works. It had only designed the scheme as it wanted the tenant out of the premises and was willing to do whatever it took to achieve that aim.

The works had been designed purely because they were required to obtain possession. The landlord admitted that it would not carry them out if the tenant vacated voluntarily or if the works could have been carried out under a right of entry in the lease. In other words, the landlord’s intention to carry out the works, whilst “firm and settled”, was conditional on whether the tenant chose to assert its right to a new tenancy.

The test established by the case is therefore “whether the landlord would intend to do the same works if the tenant left voluntarily”. In this case, the landlord would not then carry out the works and so its Ground (f) opposition to the tenant’s request for a new lease failed.

Logic tells us that the decision in S Franses has to be right. Otherwise, if a landlord’s conditional intention would be sufficient it would drive a coach and horses through a tenant’s security of tenure. A landlord would always be able to buy-out a tenant’s security of tenure simply by designing a scheme of works that it would never otherwise carry out. That could not have been the aim of Ground (f), which is there to protect a landlord’s interest in redevelopment, not its interest in obtaining vacant possession.

Impact of the S Franses case

Any cases now relying on Ground (f) will be subject to the new test: would the landlord still carry out the same works if the tenant left voluntarily?

Before S Franses it was always considered that what was important for the landlord was whether it had the necessary intention to do the works, and its motive for doing so was largely irrelevant. Post S Franses, that may no longer be the case. Landlords who “beef-up” schemes or propose works without any obvious use, are likely to find their motives coming under close scrutiny by the courts.

Whilst that may be welcome news for tenants, landlords putting forward a scheme of works that are desired (come what may) and who are able to evidence that it is their intention to carry them out, should have nothing to fear from S Franses. Consequently, a well-advised landlord may well still be able to design works which, coupled with an intention to carry them out, would satisfy Ground (f).

Why return to S Franses now?

The reason for returning to the case now is because we have just had the first post S Franses decided case on the “quality” of a landlord’s intention. Admittedly, it is only a County Court decision (and may therefore be appealed), but it does give us clues as to how the court may apply the S Franses test.

The case is that of London Kendal Street No 3 Ltd v Daejan Investments Ltd and concerns a large building on Edgware Road in London. Again, the facts are particular to the case, but the central issue was whether the landlord’s intention satisfied Ground (f) in the post S Franses era.

Landlords will be pleased to hear that the landlord demonstrated to the court that it did have the necessary intent to carry out the works, despite the tenant’s numerous arguments as to the quality of the landlord’s intent. Accordingly, the landlord was able to oppose the tenant’s request for a renewal lease under Ground (f).

Interestingly for landlords is the fact that Daejan also appears to highlight the importance of taking into account the effect of the landlord’s proposed works on third parties when considering the prospects of success under Ground (f). Whilst the tenant was not successful with its arguments on that point, could this be a further factor landlords need to consider in Ground (f) cases?

It will be interesting to see how the S Franses test is applied in future court decisions. S Franses and Daejan both demonstrate the complexities in advancing or resisting Ground (f) lease renewal objections.

For more information on landlord and tenant issues please contact:

Stewart Gregory
Partner, Commercial Property
T. 01273 766930
E. stewartgregory@rixandkay.co.uk

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