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News and Trends in UK Real Estate, Disputes and Planning Law

Posted in Real Estate News

Service Charge – RICS code gets new teeth

As 2019 begins, the property sector is gearing up for the introduction of the new RICS professional statement, which will supersede the current code of practice from 1 April 2019. The statement cannot override the terms of a lease but, as long as it is read in conjunction with the lease, the statement will guide the practical implementation of service charge provisions in the lease to ensure services are managed properly.

The key change from the current regime is the inclusion of nine mandatory obligations for RICS members and regulated firms (i.e. firms that have chosen to be regulated by the RICS and agree to work to its standards). The professional statement also identifies best practices. Whilst not mandatory, the RICS warns that it may seek justification from members who depart from best practice.

The professional statement calls out both managers and owners who display a lack of transparency in their service charge procedures and consultants engaged by occupiers to pick over the detail of service charges, a practice which can encourage tenants to withhold disproportionate amounts of payments for disputes. Instead managers, owners and occupiers alike should, the statement says, look to behave in a way that reduces the likelihood of a dispute arising.

The professional statement also recognises the confusion surrounding terms such as sinking funds, reserve funds and depreciation charges and sets out definitions for them.

And it suggests a new set of exclusions for service charge costs, including:

  • capital costs for the building;
  • improvement costs beyond normal maintenance, repair or replacement, though “enhancement of fabric, plant or equipment” can be justified following a review of options and a cost benefit analysis;
  • future redevelopment costs; and
  • costs relating to the owner’s own investment interest or void premises.

Another new section discusses the Minimum Energy Efficiency Standards. Environmentally conscious Landlords will be encouraged to see the RICS note that, subject to the terms of the lease and the rest of the professional statement, “any subsequent costs of improving energy efficiency might comprise a legitimate service charge item as long as there is a proportionate cost benefit to tenants”.

The changes to the current regime made in the professional statement add more clarification, consistency and accountability to the service charge procedure. The professional statement comments that it is likely a judge or equivalent would take into account the requirements under the professional statement during any legal proceedings. Landlords, occupiers and professionals alike should consider how the changes to the current scheme should influence their current practices.

You can read the professional statement in full by clicking here.

Posted in Real Estate News

What’s ahead in 2019?

New real estate disputes partner Paul Tonkin shares some predictions for 2019.

Crystal-ball gazing is always a dangerous business and this is more so than ever in the current global economic and political climate. However, there are a few areas where I can predict with some certainty (and for better or worse) that we will see change in 2019.

Further pressure in the retail and casual dining sector

This one will come as no surprise. Even before 2019 got truly underway, we saw the news of HMV’s (second) administration as the effects of a sluggish Christmas trade compounded what was already a difficult year. 2018 was the year of the CVA with retailers and restaurant groups using CVAs to rationalise their portfolios and reduce lease liabilities. Unless the tide is stemmed, or at least controlled, then we could see a more seismic shift in the fundamentals which underpin the retail investment market. Put simply, how can underlying investment value be assessed where tenants can use CVAs to re-write their lease liabilities? The Hogan Lovells real estate disputes team is acting on a challenge to one of the major CVAs of 2018 and I, for one, hope that this will provide much needed clarity for both landlords and tenants.

A recalibration of residential

The government has committed to tackling the housing shortage and has put forward various measures to achieve this, including changes to the planning system and the removal of red tape around local authority housing development. At the same time, the government has proposed widespread changes to the use of leaseholds in the residential sector, the most significant being a proposed ban on new leasehold houses and a £10 per annum cap on ground rents for leasehold flats. The changes are a reaction to the perceived scandal of consumers being caught out by unfair ground rents. But do they go too far? A blanket ban on leasehold houses may seem like a simple solution but it ignores the fact that many urban regeneration schemes, carried out jointly by local authorities and private developers, rely upon complex leasehold structures. An outright ban on leasehold houses will require a fundamental rethinking of these structures. Similarly, the effective abolition of ground rents ignores the fact that ground rent income (and particularly the ability to sell that income stream) is often a significant line in a developer’s financial appraisal. Removing this will place further pressure on viability which will result in developers finding it even more of a challenge to meet already ambitious affordable housing targets. If the effect of the ban is ultimately to reduce affordable housing allocations, this will be an own goal. My prediction (or hope) for 2019 is that the government takes seriously the industry’s concerns over these proposals and considers whether a sledgehammer really is needed to crack this particular nut.

Flexible working vs flexible leasing

We’re all very familiar with the growth in the flexible business space sector. As uncertainty continues to deter tenants from signing up to long-term lease commitments we will, I’m sure, continue to see more and more landlords rolling out their own flexible working products. However, even within the traditional office leasing model, flexible working cannot be ignored. Collaborative working and co-working arrangements will continue to grow and in that context the traditional lease restrictions on sharing of occupation will become increasingly outmoded. To thrive, landlords will need to embrace flexible working and flexible leasing as an opportunity rather than seeing it as a threat.

Congratulations to Paul Tonkin who was promoted to partner effective 1 January 2019.

Posted in Planning, Real Estate News

Ten Takeaways from The Student Accommodation Conference 2018

It was great to see lots of familiar faces at Property Week’s 2018 Student Accommodation Conference. There was a packed agenda with four different “streams” to choose from – and smart tech talks in the coffee breaks. So what did I learn? Here are my top ten nuggets of information:

  1. The success of the Student Accommodation industry depends on the success of our universities and colleges – Austerity measures; increased competition from abroad and problems attracting and retaining the best talent are all issues which threaten the excellent reputation that British institutions have worked so hard to establish.
  2. UK student debt is at £100 billion and rising – Tuition fees have increased by 721% since 1994, significantly higher than inflation. The Government’s Augar Review is, amongst other things, looking at how to reduce the cost of higher education. Some predict that one of the outcomes will be increased fees for science subjects because science graduates are more likely to repay the debt. Whilst a reduction in fees for non-science subjects would be welcomed, there are fears that these measures may result in fewer science graduates, contaminating the UK skills supply, and may create social mobility issues as students choose cheaper courses.
  3. The Brexit threat is a real one – Interestingly, it was not the threat to undergraduate numbers that the speakers were most concerned about this year, but the postgraduate, particularly PhD, numbers. This has a knock on effect in terms of quality of provision, research and reputation if universities start to lose their PhD students. Competing institutions in countries like Australia and Canada are waiting in the wings, or rather, are on active marketing campaigns…
  4. Keep an eye on the horizon – A longer term vision is needed to weather the storm. The industry needs to keep an eye on institutions in the emerging markets such as China and India, and on the changing higher education culture: shorter degree courses; multi-careers; and the rise in online courses, to name a few.
  5. “Build the best Ford Mondeo style product” – Probably my favourite quote from the conference by Stewart Moore of CRM Students. His point was that trendy pilates studios only get you so far – there is a natural rent saturation level. Providing a good quality product at a good price increases your chances of success, especially in the current climate.
  6. Location, location, location – Being as close to the institution as possible is key. HMO operators also agreed with this. The only exception conceded was London where locating out of centre (but as close to a fast tube line as possible), can reduce rents significantly. This is particularly true in the “affordability” crisis, which was another conference buzz-word this year.
  7. The draft London Plan is worrying developers – The requirement for at least 35% affordable housing provision on top of the other expected developer contributions has set hares running. What’s more the need for a nominations agreement covering the majority of beds before first occupation and throughout the life of the development is a cause for concern for some operators. The Leaders of Redbridge Council and the London Borough of Barking and Dagenham were confident that the draft Plan’s requirements are workable but said that aspirational boroughs will need to reach out to developers and work together to make it happen.
  8. The tech doesn’t have to be swanky – Yes wifi is as important as a bed, but reliability, not speed of service, is crucial. The student panel all agreed that “fancy apps” that are not user-friendly were pointless and frustrating. They wanted technology to enhance and enable human interaction, not replace it. This was a general theme across the conference which also considered mental health issues and solutions.
  9. The days of campus education are not numbered (yet) – The rise in online courses and the cost-saving of staying at home to study have not brought down campus education yet. Going away to study is still very much part of UK culture. Roughly 25% of students are “commuter students” and apparently this proportion has not changed dramatically in the last ten years. That said, some of the panellists were cautious and said that the outcome of the Augar Review may threaten this further.
  10. Only one of the five fastest growing universities in the UK is from the Russell Group – I was both surprised and concerned by this. One of the main reasons that the non-Russell Group universities are doing better is their focus on student employability. Some newer universities are offering industry-led initiatives which connect students with employers and ensure better preparation for working life. Student experience rankings are also significant. As students are now paying directly for their education, they expect value for money and want to ensure their voices are heard. Who can blame them?
Posted in Real Estate News

Proposed new access rights for Code operators

The government is currently consulting on proposed changes to the UK Electronic Communications Code (the “Code“), to make it easier for Code operators to access premises to install digital infrastructure enabling full fibre, gigabit-capable connections for the benefit of tenants. The consultation closes on 21 December 2018 and a link to the consultation can be found here.

Why is the government consulting?

While the UK has good superfast connectivity, “full fibre” network coverage is only available to around 5% of premises, compared with close to 100% in South Korea, for example. The consultation and proposed changes are part of a move to make the UK a hub for digital business.

The consultation follows the Future Telecoms Infrastructure Review, published in July 2018, which set out strategic priorities to deliver nationwide coverage of “gigabit-capable” broadband by 2033. One of the key barriers identified by Code operators was that some landlords are overseas or unidentifiable and do not engage with requests for entry to install digital infrastructure.

Currently, a Code operator needs formal permission from a landowner in order to enter premises and install digital infrastructure. The consultation reports that requests for entry go unanswered in up to 40% of cases. Code operators can apply to the Lands Chamber of the Upper Tribunal for permission to enter premises, but rarely use this route because of the time and expense required.

What is the government proposing?

The proposed changes aim at giving Code operators certainty and incentivising re-engagement by unresponsive landlords. The government proposes amending the Code so that landlords are obliged to facilitate installation of digital infrastructure on their premises where a tenant makes a request for service and an operator gives the landlord suitable notice.

The consultation also proposes allowing operators to seek a warrant of entry via a magistrates’ court. This reduces the period of time taken and the cost to obtain permission where a landlord does not respond. The existing right for operators to go to the Upper Tribunal will be reserved for cases which require the specialist knowledge of the Tribunal.

The proposed amendments are not intended to be alternatives to formal access arrangements. Once a landlord engages with the operator and negotiates an agreement, the temporary measures will fall away.

What does this mean for landlords?

It means that Code operators will be able to install digital infrastructure in premises without the need to obtain specific consent. This raises a number of concerns for landlords:

(a) Risers in buildings could become full of redundant cabling.  Whilst the Code contains provisions for the removal of apparatus, it is a “one size fits all” piece of legislation and does not specifically cater for wayleave agreements.  Wayleaves can be temporary in nature as the apparatus is usually only installed for the period that the tenant requesting the service is actually in occupation of the premises.  The issue could be exacerbated if operators could just install additional equipment.
(b) There could be complex property ownership structures which mean that the relevant landlord may not be easily ascertainable. This could mean that a landlord is not “absent and not engaging” but simply has not been notified.
(c) The landlord may need to juggle conflicting third party ownership rights over a property before granting access.  These competing rights should be taken into account if an operator applies for an access order.
(d) Although the proposed amendments are intended to be temporary measures, once an operator has access and has installed the equipment, what incentive will there be for  a Code operator to enter into a written agreement?

If the government’s proposals become law, landlords and agents will need to streamline their processes to ensure that requests for installation and upgrades of telecoms equipment do not go unanswered.  Not to do so could result in some surprise visitors.

Posted in Real Estate News

Consultation launched on enfranchisement rights

What does enfranchisement actually mean and what’s wrong with the current regime? Enfranchisement is the process by which people who own property on a long lease may extend the lease, or buy the freehold.  The procedure for doing so is not, however, universally popular.  Leaseholders argue that it is complex and expensive, leading to unnecessary conflicts, litigation and delay.

In light of this, the Law Commission has recently published a consultation paper setting out sweeping reform of the enfranchisement process.  Comments may be sent using the online form – the consultation is now open and closes on 7 January 2019.

The current enfranchisement rules are contained in over 50 Acts of Parliament. Moreover, there are different rules for leaseholders of houses and of flats, and the qualification criteria are complex and scattered across several statutes. Bringing an enfranchisement claim, even if there is no dispute between the parties, often brings about legal and other costs because of the complexity of the process.  To make matters worse, leaseholders of houses are required to contribute towards the landlord’s non-litigation costs.  Even if these costs are considered unreasonable, leaseholders are often left with no other option than to pay due to the disproportionate cost of disputing the sums.

The scheme is also unpopular due to its highly technical nature; simply beginning a claim can give rise to difficulties for a leaseholder. Minor errors in the tenant’s initial notice may invalidate the claim. Landlords might be difficult to identify, and there can be disputes about whether a notice has been validly served.

Leaseholders argue that the valuation approach in the scheme is overly complex and difficult for the layman to understand. Leaseholders also state that where ground rents are high, the need to enfranchise is even more important for the leaseholder, but premiums are also too high.

In response to all this, the Law Commission is proposing several changes to make the process easier, quicker and more cost effective for leaseholders. These include:

  1. Scrapping the complicated categorisation of “houses” and “flats” and replacing with the new concept of a “residential unit”, for which there would be a universal right to a lease extension available to all leaseholders (whether they own a house or flat);
  2. A right for leaseholders to acquire the freehold of a building individually, or of a building or estate collectively.
  3. A new right for leaseholders who didn’t participate in a previous collective freehold acquisition to do so at a later date.
  4. The removal of the current requirement that a leaseholder wanting to extend their lease or buy the freehold of their house must have held the lease for the last two years.
  5. Introducing a single procedure that would apply regardless of the enfranchisement right being claimed, using standard forms (to reduce the risk of notices being invalid) and deemed service provisions.
  6. Proposals that all disputes be handled by the First-tier Tribunal (Property Chamber), so leaseholders would no longer have to navigate the complex division of responsibility between the County Court and the Tribunal.
  7. Simplifying the legislation by adopting a consistent valuation methodology.

The Law Commission has stated however, that the intention behind the proposals is not to remove the requirement for leaseholders to pay landlords an appropriate price but rather to improve the process and reduce premiums payable by leaseholders, while ensuring sufficient compensation is paid to landlords. They must also take care not to cause damage to the leasing market at a time when supply is not meeting demand. Perhaps though, this is easier said than done… We shall find out in 2019 when the Law Commission plans to publish its full and final report paper!

Posted in Real Estate News

Commonhold: Dead duck or ugly duckling?

Tasked with reinvigorating commonhold, the Law Commission has published a consultation on its proposals to make commonhold a workable alternative to leasehold, for both existing and new homes.

Dead duck?

As previously blogged, commonhold was introduced in 2002 and was heralded as a new form of property ownership that would address the difficulties faced by leaseholders and other landowners. Similar systems have operated successfully in a number of other countries including Australia and the USA. However, the take up rates in England and Wales have been low. There are currently only 20 commonhold developments in England and Wales.

Commonhold allows an individual to own a freehold “unit”, such as a unit on an industrial estate or a residential flat. Property ownership can be divided vertically or horizontally. Each unit holder is a member of the Commonhold Association (CA), a limited company, which owns and manages the common parts. The CA determines the financial contribution to be paid by each unit holder for the management of those common parts.

Despite the potential benefits, there has been a low take up of commonhold. Developers and lenders remain sceptical as to its adequacy as security and are unwilling to take the risk on untested structures and procedures.

Ugly Duckling?

One of the aims of the consultation is to improve lender confidence in commonhold and highlight its benefits over leasehold ownership. Other proposals include:

  • Enabling commonhold to be used for larger mixed-use developments which accommodate not only residential properties but also shops, restaurants and leisure facilities.
  • Allowing shared ownership leases and other forms of affordable housing to be included within commonhold.
  • Making it easier for leasehold owners to convert to commonhold.
  • Providing homeowners with a greater say in how the costs of running their commonhold are met.
  • Enabling homeowners to end certain long-term contracts imposed by developers.

Whether the proposals do enough to reinvigorate commonhold remains to be seen. If not, this consultation must surely be its swan song.

The deadline for responses is 10 March 2019. A copy of the consultation can be found here.

Posted in Case Updates

Contractual rights outweigh public interest in restrictive covenant case

The Court of Appeal has sent a firm message to developers who seek to cut corners by knowingly breaching restrictive covenants. A recent decision means that 13 units of social housing, constructed on land on which building was prohibited, may now need to be torn down.

What happened?

Millgate was a developer that owned land subject to a restrictive covenant which prevented any use of the land other than as a car park. The Alexander Devine Children’s Cancer Trust owned a neighbouring property which benefitted from the covenant. It was building a hospice for terminally ill children on the site and planned to have a peaceful wheelchair path around the perimeter of its gardens.

Millgate built 13 affordable housing units in order to meet planning obligations which would allow it to market a high-value development nearby. It built the homes close to the boundary with the Trust’s land, in deliberate breach of the covenant, and then applied to the Upper Tribunal to modify the covenant. The case was first heard by the Upper Tribunal in 2017.

The Upper Tribunal found that the housing development had a significant impact on the hospice land and also noted that Millgate had not acted in good faith. However, it held that the public interest in making the affordable homes available immediately to people who had been waiting for social housing was sufficient to justify modifying the covenant. The decision saved the developer almost £1.6 million.

The Appeal

The Court of Appeal overturned the Upper Tribunal’s decision. The public interest in allowing the social housing units to remain did not outweigh the public interest in protecting the Trust’s contractual rights. The Court noted that it would have been possible for Millgate to build all of the housing units on land unaffected by covenants, while still meeting its affordable housing requirement. Alternatively, Millgate could have paid a contribution to provide social housing on an alternative site nearby, which could have been ready quickly.

When exercising its discretion, the Court of Appeal also considered Millgate’s conduct. Millgate had acted in a way that was “deliberately unlawful” and it should not be entitled to rely on its own unlawful conduct in having built the social housing in breach of covenant as a factor justifying the modification of the covenant. While the Court of Appeal made clear that the judgment was not intended to be a punishment, it emphasised that it would not incentivise law breaking.

What does the decision mean?

Should the Trust now seek to enforce the covenant, Millgate may be required to demolish the new houses or to pay the Trust substantial damages to compensate it for the breach of the covenant.

The judgment sends a clear message that buying cheap land subject to restrictive covenants and then deliberately breaching these will not be rewarded. A developer who wishes to build on land subject to restrictive covenants should try to reach an agreement with the person who benefits from the covenants, or should make an application to release or modify the covenants before starting construction.

Case: The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and others [2018] EWCA Civ 2679

Posted in Real Estate News

What happens to ESOS after Brexit?

The short answer is nothing. The Energy Savings Opportunity Scheme implements an EU Energy Efficiency Directive and is all set to continue after Brexit on the same basis as before. Draft regulations were published on Thursday 22 November 2018 to make some changes to the current ESOS Regulations once Brexit happens, but this is to address deficiencies in the ESOS Regulations that will be caused by Brexit, not to change their substance.

What’s going to change?

Whether or not an undertaking has to comply with ESOS depends on whether it is “large” (or in the same corporate group as a “large” undertaking). One of the tests for this is whether the undertaking meets financial thresholds that are set out in euros. After Brexit, these thresholds will be converted to pounds sterling.

Qualifying undertakings can comply with their obligations under the Regulations by having a certified Energy Management System. Post Brexit, certification will still be permitted by bodies accredited by the United Kingdom Accreditation Service (UKAS).

In other words?

It’s business as usual.

What do I need to do now?

Phase 2 of ESOS is now well underway; the compliance deadline is 5 December 2019, by which time the Phase 2 audits must have been carried out and compliance reports submitted by undertakings that are required to participate. An undertaking must participate if it is either (a) a UK company that (i) employs 250 or more people or (ii) has an annual turnover of more than €50m (£44m after Brexit) and an annual balance sheet total of more than €43m (£38m after Brexit) or (b) an overseas company with a UK registered establishment which has 250 or more UK employees paying income tax in the UK. A corporate group must participate as a whole if one or more of the companies in it is large enough to fall within ESOS. ESOS does not distinguish between property investors, developers, occupiers or funders, so any business that is large enough to meet the qualification criteria must participate in it.

A major problem in the run up to the Phase 1 deadline (5 December 2015) was the difficulty that participants had in finding lead assessors and auditors to carry out their audits. Participants are therefore strongly advised to get ahead of the crowd and start work on their audits straight away, and in particular to engage now with the auditors and lead assessors that they would like to instruct while they still have capacity to undertake the necessary work.

We fully anticipate a last minute rush in Q4 2019, just as we saw in Q4 2015, but participants that can get ahead of the curve should get better quality audits and will have plenty of time to ensure that they have complied in full, especially where careful analysis of complex corporate group and/or property ownership structures are required. There is always the possibility of implementing sooner something that may actually save energy and money, too!

Posted in Real Estate News

Japanese knotweed: have your say

Following the Court of Appeal decision in Network Rail Infrastructure Limited v Williams and Waistell, Parliament is digging deeper to untangle the effect of Japanese knotweed on the built environment.  The Science and Technology Commons Select Committee has been tasked with ensuring that Government decisions and policies are underpinned by good scientific foundations and is calling for submissions.

Back in July we blogged on the Court of Appeal decision which awarded damages to two property owners who each owned a bungalow neighbouring part of Network Rail’s land, from which Japanese knotweed had spread.  The issue is that this invasive weed spreads rapidly and can smash through a building’s foundations causing substantial damage, affecting valuations and making the financing of impacted properties very difficult.

The Select Committee has announced it will hold a one-off oral evidence session with relevant experts in early 2019 to explore “the science behind the effects of Japanese knotweed on the built environment”.

So what does the Committee want to know?  Ahead of the session, it is calling for written submissions on:

1. scientific evidence regarding the impact of Japanese knotweed on the built environment;

2. how the presence of Japanese knotweed affects lending decisions and property valuations;

3. whether lending decisions relating to Japanese knotweed are based on sound scientific evidence of its effects on the built environment; and

4. what guidance for the sector currently exists, the impact of existing legislation, and how else evidence-based responses to the presence of Japanese knotweed can be encouraged.

If you would like to respond the inquiry page contains a submissions form.

The Committee is also keen to hear from the public about their experiences of dealing with Japanese knotweed, whether this arises through being a homeowner, a tenant, a prospective purchaser or a developer. You can respond via this webform, and the Committee will be inviting a number of those who respond to an engagement event in Westminster on 21 January 2019.

All written submissions and contributions should be provided by 31 December 2018.

Watch this space – we’ll be blogging the latest developments in the New Year.

Posted in Real Estate News

A landlord’s intention to redevelop – breaking news from the Supreme Court

The Supreme Court has handed down its judgment in the case of S Franses Limited v The Cavendish Hotel (London) Ltd in the most important 1954 Act case for decades. The Court’s decision clarifies the nature of the ‘intention’ which a landlord must have in order to oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.

Whilst the Court confirmed that a landlord’s motives for carrying out works are irrelevant, the Court made clear that a landlord’s intention to carry out works must be unconditional.

A landlord’s right to redevelop

The Landlord and Tenant Act 1954 (the “Act“) provides tenants with a statutory right to renew their tenancies of business premises, subject to the ability of the landlord to oppose renewal on a limited number of grounds.

The most commonly used ground by landlords to oppose renewal is set out in section 30(1)(f) of the Act, known as ground (f), and provides that a landlord may oppose 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 of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding

The existing case law had established that a landlord must have a fixed and settled intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) and that, provided a landlord has this intention, the landlord’s motive for carrying out works is irrelevant (even if the sole aim of the works is to satisfy ground (f) and remove the tenant).

The facts

S Franses Limited (the tenant) has a lease of premises at 80 Jermyn Street, London and deals in antique tapestries and textile art. Its landlord is the Cavendish Hotel.

In 2015, the tenant sought to renew its lease and the landlord opposed renewal relying on ground (f). Over the next 18 months the landlord proposed three different schemes of works, the latest of which was known as Scheme 3, which was the scheme of works which it ultimately relied upon at court.

The first instance decision

At first instance:

  • the judge acknowledged that “some aspects of the intended works have been contrived only for the purposes of ground (f)“;
  • it was acknowledged by the landlord that the works would not be undertaken if the tenant left voluntarily, but that if possession on redevelopment grounds was ordered, the entirety of the works would be carried out; and
  • it was acknowledged that the works that the landlord intended to carry out would not provide any utility to the landlord without further works that required planning permission.

At first instance the judge decided that the landlord had satisfied ground (f) and was entitled to possession of the premises.

The appeal

The tenant appealed to the High Court on a number of grounds; however, the High Court rejected the tenant’s appeal in relation to the landlord’s intention. The tenant was then given permission to appeal directly to the Supreme Court.

In the Supreme Court the tenant argued that:

  • when Parliament said that a landlord has to intend to do works of demolition, reconstruction or construction in order to satisfy ground (f), what it meant was that such works had to have some commercial purpose beyond trying to get vacant possession from a tenant; and
  • when the Act says that the landlord ‘intends’ to carry out works, that intention needs to be unconditional, i.e. the landlord does not have the necessary intention if it would not carry out the works if it could get possession of the premises by some other means (i.e. if the tenant leaves voluntarily).

Significantly, the Supreme Court made clear that a landlord’s intention to carry out works to satisfy ground (f) must be unconditional. Lord Sumption stated: “The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim“.

In this case, the landlord had admitted that it would not carry out the works if the tenant left voluntarily. As a result, the landlord’s intention was not unconditional, so was not sufficient to satisfy ground (f). In Lord Sumption’s view: “The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily“.

However, the good news for landlords is that the Supreme Court was clear that a landlord did not have to show that the works were reasonable or had some commercial purpose (above and beyond removing the tenant) in order to satisfy ground (f). That argument was “not only more radical in its implications but more difficult to reconcile with established authority on the Act of 1954“. Therefore, it remains the case that a landlord’s motive for carrying out the intended works is strictly irrelevant.

What does this mean for landlords and tenants?

Going forwards, if landlords are seeking to rely on redevelopment grounds to remove tenants, they will need to be prepared for the fact that they will have to show that they will carry out the required works whether or not a tenant leaves voluntarily. This may well be more difficult to show in cases (such as Franses) where the only reason for doing the works is to remove the tenant and will, naturally, provide tenants with further opportunity to seek to challenge a landlord’s intention to carry out works.

S Franses Limited v The Cavendish Hotel (London) Ltd [2018] UKSC 62