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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