A recent Supreme Court case has considered if a landlord’s motive, namely to remove a tenant in occupation, is relevant in determining whether or not to order a new tenancy. Are works or demolition proposed with the sole intention of removing a protected tenant sufficient for a landlord to regain possession?
Security of Tenure
Business tenants enjoy a qualified security of tenure under Part II of the Landlord and Tenant Act 1954 (“the Act”). Security of tenure is a statutory right for a tenant to remain in occupation and request a new tenancy once the original fixed term expires. Security of tenure is intended to protect one of a business’ most valuable assets, goodwill, which is often attached to the premises which a business occupies. If a tenant applies to the court for a new tenancy under section 24(1) of the Act, the court is required to order a new tenancy unless one of the seven grounds of opposition (as set out in section 30(1) of the Act) is met by the landlord; if the landlord proves one of these grounds, it is mandatory for the court to refuse the tenant a new lease.
Opposition - Ground (f)
Ground (f) is found under section 30(1) of the Act. This ground provides that the landlord may oppose a new tenancy on the basis that the landlord intends to demolish, reconstruct or carry out substantial work of construction on the premises, or a considerable part of the premises, at the end of the current tenancy. It must be reasonable to require the tenant to vacate; the landlord cannot reasonably carry out the works if the tenant remains in possession. The landlord is also required to prove that it has a “firm and settled” intention to carry out the works.
Case in hand – intention, motive and conditionality
In S Franses Limited v The Cavendish Hotel (London) Ltd, the landlord opposed the tenant’s application for a new tenancy under ground (f) by evidencing a scheme of works which were impractical and also impossible to use without the grant of planning permission for change of use (which the landlord did not intend to seek). The landlord admitted that the purpose of the works was to obtain possession and designed purely to satisfy ground (f); if the tenant left voluntarily or the works were able to be done with the tenant in occupation, the landlord had no intention to do the works - the works were conditional on whether they were necessary to remove the tenant from the property.
The case was originally heard in the County Court, which decided that the landlord genuinely intended to carry out the works and ground (f) was satisfied. The court declined to order a new tenancy.
The tenant appealed to the High Court, who agreed with the previous decision but granted permission for a “leap-frog” appeal to the Supreme Court. The permission was granted as the decision of the High Court, although based on established legal principles and tests, brought into sharp focus a potential loophole in a tenant’s protection; a landlord could propose works solely to remove a tenant from the property. The High Court’s decision rendered the landlord’s motive, the reasonableness of its intentions and the usefulness of the works all irrelevant as long as the landlord could prove that (1) it intended to carry out the works and (2) it was practically able to do so. Clarification regarding the proper interpretation and application of the ground (f) test justified a “leap-frog” to the Supreme Court.
The question for the Supreme Court was whether a landlord can oppose the grant of a new tenancy when the proposed works have no purpose other than to remove the tenant and would not be undertaken if the tenant chose to leave voluntarily. Does an intention to carry out works solely to remove the occupational tenant engage ground (f)?
Supreme Court decision
The Supreme Court determined that the landlord’s motive or purpose for the works was irrelevant; however, the conditionality of the landlord’s intention to demolish or reconstruct does affect whether the landlord’s intention can be considered “firm and settled”.
The landlord’s intention must exist independently of a tenant’s right to a new lease of the property. The landlord must intend to do the works whether or not the tenant chooses to assert their right to a new tenancy; the tenant’s occupation must obstruct the landlord’s intended works and the works should be intended to be carried out whether the tenant left voluntarily or through a right of entry with the tenant in occupation. If an intention to do the works is conditional on whether or not the tenant leaves, it cannot be the firm and settled intention which ground (f) requires. Although the motive was irrelevant in itself, it could be used to evidence the conditionality of the landlord’s intention to carry out works.
The Supreme Court determined that works designed for the purpose of removing protected tenants from a property are essentially a way to obtain vacant possession. The right to obtain vacant possession on expiry of the existing term is not a right designed to protect the landlord’s interest under section 30 and is not a ground of opposition; quite the opposite, as this is the very thing which security of tenure is designed to prevent. Therefore, it could not have been the intention of Parliament, when creating a tenant’s statutory right to a new tenancy, that it could be circumvented by proposed works which would not be undertaken had the tenant left voluntarily.
What does this mean for tenants and landlords?
The decision will be gratefully received by commercial tenants, whose protection was under threat by the High Court decision; the decision could have left protected tenants vulnerable to landlords proposing disruptive works just to regain possession of a property. Going forward, tenants should critically assess a landlord’s plans to include a focus on whether the landlord intends to carry out the works even if the tenant chose to vacate voluntarily.
For landlords opposing a renewal lease, this may be an additional hurdle to overcome. Landlords may begin to increasingly rely on the other six statutory grounds in order to oppose a tenant’s request for a new tenancy.
If the intention to regain possession at the end of the term is in the mind of a landlord when granting a new tenancy, the statutory procedure for “contracting out” of the Act should be followed; the landlord should serve notice and agree with the tenant to exclude the relevant provisions of the Act before entering into the lease.
It is worth noting that the landlord in this case was remarkably honest about their intention to remove the tenant and not all landlords will be so open; Lord Sumption noted in his judgment that the Supreme Court cannot ignore the possibility that landlords may disguise their intentions more effectively in future, based on this decision, but that the court had to proceed on the basis that litigants are honest and dishonesty would be found out by experienced judges who hear the cases. The full implications will not be known until this precedent is implemented into County Court decisions