Hough v Greathall Ltd [2015] EWCA Civ 23

The Time is Right

Summary

Where a landlord wishes to redevelop a property but the tenant also has statutory rights entitling it to a new tenancy, the landlord must prove its intention to redevelop to the satisfaction of the Court. One of the key questions is when the landlord needs to prove this intention. Is it at the date that the landlord gives first notice of its intention or at the date of the Court hearing?

This question has recently come before the Court of Appeal, which upheld a County Court decision to terminate a business tenancy that enjoyed security of tenure under the Landlord and Tenant Act 1954 ("the Act"). The tenant tried to argue that, following changes to the wording of the Act made in 2004, the landlord had to be able to prove its intention at the date it served the notice. However, the Court of Appeal disagreed, and upheld the original decision to confirm that the key date is indeed the date of the hearing, not the date of the notice. This confirmation is important for landlords and tenants alike.

The Facts

This case concerned business premises at Station Road, South Norwood ("the Property"). In June 2013, the landlord served a Section 25 notice on the tenant of the Property to terminate the lease. Although the tenancy had the benefit of security of tenure under the Act, the landlord sought possession of the Property on the basis that it intended to carry out substantial works of redevelopment.  An intention to redevelop is one of the statutory grounds of opposition to granting a new lease, as set out at paragraph (f) of section 30(1) of the Act. 

The tenant did not accept the landlord's plans and applied to Court for a new tenancy, thus compelling the landlord to prove that it had a genuine and settled intention to redevelop the Property. The case was heard by the County Court at Croydon in May 2014. 

At the first hearing, the trial judge accepted the landlord's evidence that it had the requisite intention to redevelop, and ordered the tenant to give up possession by 4:00pm 29 August 2014. However, the judge also gave the tenant permission to appeal on a point of law. Consequently the order for possession could not be enforced until judgment had been given on the appeal.

The point for appeal was this: The judge found that the relevant date was the date of the hearing, and that the landlord had succeeded in establishing its intention at that date, ie 29 May 2014. However, the tenant had argued that the key date should in fact have been the date on which the landlord's Section 25 notice terminated the lease, namely 19 June 2013. If the tenant were correct on this point, the landlord would have failed to prove its intention, and the tenant would therefore have been entitled to a new lease.

It was this point that the Court of Appeal was asked to determine. 

The Appeal

The tenant did not dispute that the landlord intended to redevelop the Property.  His sole argument was that the judge had applied the law incorrectly by assessing the landlord's intention at the trial hearing date.

Proving the intention to redevelop is not necessarily straightforward and may be highly contentious where a tenant does not wish to relocate from its existing premises.  The landlord may be required to submit substantial information concerning the redevelopment and its strategy for carrying it out. When a Section 25 notice is served, a redevelopment project may still be very much in its infancy, and so even if the landlord has resolved to carry out the works, proving this intention may be difficult.  If the tenant were to succeed in persuading that the earlier date is key, this would put landlords under even greater pressure to prove their case, and would have given tenants a significant tactical advantage.

There is long-established case law that confirms the date on which the landlord needs to prove its case is the date of the hearing. However, in this case, the tenant sought to distinguish these circumstances from previous precedents by virtue of the change in the wording of the Act that was brought in when the Act was amended by the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003/3096, which took effect in 2004. These changes were made to the wording of Section 25, for notices served by landlords, but critically not to the wording of Section 26, for notices served by tenants. The tenant sought to rely on this distinction to prove his case.

The Court of Appeal reviewed the existing authorities on the point raised by the tenant and noted that they supported the landlord's position. However, it accepted that there had been revisions to the Act since the authorities were decided, and so these were put under careful scrutiny. 

Under the old provisions in the Act, a landlord was required to state in its notice whether it wouldoppose a new tenancy, based on its chosen ground of opposition. Under the updated provisions in the Act, a landlord is now required to state whether it is opposed to the grant of a new tenancy when it serves notice on the tenant under Section 25. The tenant argued that this change to the present tense meant that the landlord must have the requisite intention at the date the notice is served, in contrast to the previous wording of the statute, which clearly used "the language of futurity".

The Decision

The Court of Appeal found unanimously in favour of the landlord and upheld the original decision to terminate the tenancy. It found that the changes to the Act were precipitated by a desire to remove a counter notice procedure that had been criticised by the Law Commission as a "trap" for tenants. Once that requirement had been removed, the conditional wording of Section 25 was unnecessary, and so was replaced by the present tense. There was nothing in the recommendations made at the time to support a change to settled law on the date by which the landlord must prove its intention.

Furthermore, although a landlord is required to state whether it is opposed to a renewal of the lease and its reason for this, there is no specific obligation for the landlord to prove its position. The proper time for this is at trial, when the matter can be assessed by a judge with the benefit of all the evidence using the normal procedures.

Finally, the Court also noted that adopting the tenant's argument could result in the Court being required to assess a landlord's intention many months before a trial. This would have various practical difficulties and would result in what the Court called "an odd investigation".

Our advice

The result of the Court's decision in this case confirms the position that has been adopted by practitioners since the House of Lords first considered the issue in 1959 under the original wording of the Act.

For Landlords

This confirmation will come as a relief to landlords, who will not now find themselves in the position of having to be prepared to prove intention at a very early stage. The alternative would have been to force landlords to prepare conclusive evidence before serving the initial notice, which would have been an unnecessarily expensive exercise and impracticable given the time it may take to obtain possession and implement plans e.g. financing may be dependent on the market which is ever changing.

However, the timing on this case does demonstrate the impact that a fully contested case can have upon redevelopment. The landlord originally wished to take back possession in June 2013, but the Court of Appeal decision was not made until January 2015, meaning that the lease would not come to an end until April 2015 – a delay of almost two years. Landlords would therefore do well to seek early advice on how to put together a compelling case and how to negotiate with tenants successfully.

For Tenants

The case is also very useful information for tenants with security of tenure. Although landlords will now have more time to prove a ground of opposition, this will also provide tenants with an opportunity to assess the landlord's position in detail, without needing to make pre-action applications for disclosure of the evidence.

Tenants should also seek advice at an early stage to ensure that they are in the best position both to challenge the landlord's assertion and to carry out any negotiations.