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Opposing a lease renewal on redevelopment grounds – a helpful case for landlords

The case of London Kendal Street No3 Limited v Daejan Investments Limited (2019) provides some useful guidance on what a landlord needs to show in order to successfully oppose a tenant’s right to renew its tenancy on the ground that the landlord intends to demolish or reconstruct the tenant’s premises.

A landlord’s right to redevelop

The most commonly used ground by landlords to oppose a tenant’s right to renew under the Landlord and Tenant Act 1954 (the “Act”) is set out in section 30(1)(f) of the Act. Under ground (f), 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”

In order to prove ground (f) a landlord:

  • must have a fixed, settled and unconditional intention, as at the date of trial, to carry out works of redevelopment to satisfy ground (f) (the subjective test); and
  • has to show that it has a reasonable prospect of being able to carry out the works, i.e. a reasonable prospect of obtaining building consents, planning permission and being able to show that it has funding available for the project (the objective test).

The facts

London Kendal Street No3 Limited, the tenant, occupied premises at a building called Park West, on Edgeware Road.  It occupied these premises by way of four leases.

In 2017, Daejan, the landlord, opposed renewal of the tenant’s lease of suite C2 at the premises, specifying ground (f).

At around the same time, Daejan began to carry out significant works to the basement of the premises.  These works “involved highly intrusive noise levels”.  As a result, London Kendal Street threatened to seek an injunction to stop the works on the basis that the works breached the landlord’s covenant for quiet enjoyment and amounted to a derogation from the landlord’s grant.  Daejan ceased the works in order to try to agree a programme of reasonable measures with the tenant.

In the meantime, the tenant challenged the landlord’s ability to satisfy ground (f) and this matter eventually came to court in March 2019.

It was not disputed at trial that the landlord had the necessary funding for the works, had obtained planning permission and had entered into a building contract with the contractor.

However, the tenant argued that the works to suite C2 would repeat the “intolerable disturbance” which had resulted from the basement works and, as a result, the tenant would “have no hesitation in seeking interim injunctive relief to prevent the [landlord’s] works from unlawfully interfering” with its use and enjoyment of its remaining premises.  As a result, the tenant argued that there was a “high risk” that the landlord would be unable to undertake the works to suite C2, meaning that the landlord could not satisfy the objective test.

Decision

The judge noted that “there is a real possibility that such proceedings [for an injunction] will be issued by the claimant if the work commences and that they may succeed (to a certain extent) if the works cause disruption”.

However, the judge reasoned that even if an injunction of some kind was granted, “a court would be reluctant to leave the parties in a situation whereby one party (the defendant) is prevented from carrying out works on their own property…”.

The judge concluded that, notwithstanding the risk of an injunction, the landlord had established a reasonable prospect of being able to carry out its works to suite C2, thereby satisfying the objective test.  The judge also concluded that the landlord had satisfied the necessary subjective test.

Good news for landlords

Often redevelopment works will be noisy and intrusive meaning that there is a high risk of complaints from neighbouring landowners and adjoining tenants, which may often result in legal letters threatening injunctions.  However, what this case helpfully demonstrates is that the mere threat or possibility of an injunction should not be used by a tenant to create another hurdle for a landlord seeking to oppose a tenant’s right to renew its lease.

London Kendal Street No3 Limited v Daejan Investments Limited (2019)