Examining the intention to redevelop - S Franses Ltd v The Cavendish Hotel (London) Ltd

Consultation on new permitted development rights

We considered the High Court’s decision to refuse a tenant’s application for a new business tenancy in our insight article on 21 March 2018.  This was the case where a landlord had designed a scheme of works with the sole purpose of defeating the tenant’s statutory right to a new lease under the Landlord & Tenant Act 1954 (“the Act”).  The landlord had convinced the County Court and the High Court that it satisfied the relevant test by demonstrating its intention to carry out substantial works of construction to the tenant’s premises, and that as a consequence the tenant should not be granted a new lease.

The tale continues following the tenant’s leap-frog appeal to the Supreme Court, which handed down its decision on 5 December 2018.  In a surprising, and unanimous, decision the Supreme Court held that the landlord’s intention to carry out the works was conditional on the tenant refusing to move out.  This conditionality meant that the landlord could not demonstrate the requisite intention and the tenant was therefore entitled to a new tenancy.

Background

S Franses Ltd, the tenant, occupies premises at 80 Jermyn Street under a protected lease for use as a retail art gallery, showroom and archive.  The Cavendish Hotel, the landlord, occupies and manages the remainder of the building.  In 2015, the tenant requested the grant of a new tenancy which the landlord opposed on development grounds (ground (f) of section 30(1) of the Act).  The landlord presented successive schemes of work which were, in the words of the County Court judge, “designed with the material intention of undertaking works that would lead to the eviction of the tenant regardless of the works’ commercial or practical utility and irrespective of the expense”.  It was common ground that the proposed works had no practical utility other than for the landlord to obtain vacant possession and, by the landlord’s own submission, “that is all there is to it”.

Judgment

The Supreme Court accepted that the touchstone of ground (f) is “a firm and settled intention to carry out the works” and confirmed that the landlord’s motivation is irrelevant, except as a means of testing whether the intention exists.  If the landlord’s intention is genuine, it was agreed that it does not matter whether the scheme is reasonable or practical.

However, the Court stated that the “nature or quality” of the intention was also relevant to the requirements under ground (f).  The landlord’s honest admission that it would not carry out the works if the tenant left voluntarily, or the works could be done by exercising a right of entry, proved to the Court that its intention was conditional.  The Court found that the Act required the landlord’s intention to “exist independently of the tenant’s statutory claim to a new tenancy”.

In considering the Act, the Court stated that:

  • Section 30(1)(f) assumes that the landlord’s intention to demolish or reconstruct the premises is being obstructed by the tenant’s occupation; and
  • Section 31A provides that the court cannot hold that the requirement has been satisfied if the works can reasonably be carried out by exercising a right of entry and the tenant is willing to include a right of entry for that purpose in the new tenancy.

The Court’s view was that the acid test is whether the landlord would intend to do the same works if the tenant left voluntarily, which in this case they would not.

In the case of The Cavendish Hotel, the Court held that the landlord would not carry out the works if the tenant left voluntarily, or if the works could be carried out while the tenant remained in possession.

In Lord Sumption’s view, this conditionality in the landlord’s intention “is not the fixed and settled intention that ground (f) requires”.

Implications for landlords and tenants

Where landlords are seeking to rely on ground (f) to oppose a lease renewal, they will need to be prepared for tenants to make their lives more difficult.  Tenants may argue that landlords have to prove that they will carry out the works whether or not the tenant leaves voluntarily.  Landlords may also face questions about the practical value or commercial viability of the proposed works in order to convince the Court that the rationale for the works is independent of the tenant’s rights.

Genuine claims are unlikely to fail as a result of this decision, but proceedings may well be more protracted and expensive.  Tenants who suspect that a landlord has contrived a scheme of works for the purpose of obtaining vacant possession are now in a much improved bargaining position, and can be expected to seek to leverage this advantage in any negotiations.

Contact our experts for further advice

View profile for Naomi CampbellNaomi Campbell, View profile for Stephanie WhiteStephanie White

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