The Supreme Court recently handed down its decision in S Franses Limited -v- The Cavendish Hotel (London) Limited (2018). In this much anticipated Judgment, the Supreme Court determined that a landlord cannot oppose a renewal of a tenant’s lease pursuant to the Landlord and Tenant Act 1954 (“the 1954 Act”) on the basis that it has developed a scheme of works to be carried out solely for the purpose of securing possession.

We explore in this note how the decision arose, and what implications it may have for landlords and tenants in the future.

Possession under the 1954 Act and Ground (f)

There are 7 specific grounds a landlord can rely on to oppose a renewal. One of the most frequently referred to, known as Ground (f), concerns a landlord’s plans to redevelop the property. Specifically that:

“On 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 works of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding.” [emphasis added]

This case revolved around the parts in bold, in particular the word “intends”. This has previously been held to involve two separate issues:

  1. Whether the landlord has a genuine, fixed and unconditional intention to carry out works; and
  2. Whether the landlord can in practice carry out the works.

Whether or not the landlord has this intention is determined as at the trial date.

The court has repeatedly held that the landlord’s motive in carrying out the works is not relevant. So for example, where the landlord was carrying out works to enable itself to occupy the premises, it only mattered whether the works were substantial enough to bring them within Ground (f).

Before this case however, the court had not considered whether the landlord could devise a scheme of works to fall within Ground (f) with the sole objective of securing possession from the tenant.

Relevant facts

S Franses Limited (“the Tenant”), has been operating a dealership and consultancy in textiles from ground and basement floors at 80 Jermyn Street, London (“the Premises”) since 1991. The Premises form part of the Cavendish Hotel building, with parts of the Hotel both above and adjacent to the Premises.

In March 2015, the Tenant served a request under Section 26 of the 1954 Act proposing terms for a new lease to commence from 3 January 2016. The Cavendish Hotel (London) Limited (“the Landlord”), served a Counter Notice opposing renewal under Ground (f).

At the time of opposing the Tenant’s renewal, the Landlord seems to have had some general plans for a future development of the hotel, and therefore wanted to prevent the Tenant from securing a new tenancy. However, it did not have any specific plans to incorporate the Tenant’s Premises into the hotel, so instead devised a scheme of works aimed solely at satisfying the technical requirements of Ground (f).

The Landlord had some difficulty in devising a scheme of works due to planning restrictions. In particular, because: (1) the permitted planning use for the Premises was specific to the Tenant’s business; and (2) the local authority was opposed to the Landlord’s proposed works to the exterior of the Premises. Consequently, for the purpose of these proceedings, the Landlord proposed only to alter the interior of the Premises.

The scheme of works essentially involved dividing the premises into two units. As there was only one entrance to the Premises however, the only way to get access to one of the units would have been through the other. That, combined with the limited use to which the Premises could be put, would have significantly restricted any practical use of the Premises following the Landlord’s proposed works.

The proposed works were also largely artificial. By way of example, the landlord intended to remove a particular wall, and then immediately rebuild it. It also proposed the lowering of a floor slab to create a stepped floor within the Premises, which served no function. These works were adopted solely because they were of a substantial and structural nature, which is what Ground (f) requires.

Furthermore, the Landlord accepted, when giving evidence at trial, that if the Tenant were to leave voluntarily, it had no intention of carrying out its scheme of works.

Despite all of these issues, the Landlord, as has been common in these types of cases, gave an undertaking to the court at trial that if possession were granted, it would carry out its proposed works.

The Court decisions

When the matter went to trial in the County Court, in light of the previous authorities regarding the irrelevance of the Landlord’s motive, and the giving of the undertaking by the Landlord to carry out the works, the court had little choice but to conclude that Ground (f) had been satisfied.

The Tenant appealed to the High Court, citing nine different grounds. The appeal was heard in July 2017, and was successful for the Tenant on two technical points (regarding the timing and nature of the proposed works), neither of which are ultimately of relevance to the case. Importantly, the Tenant failed to persuade the court on the key issue of the landlord’s intention. The High Court remitted the case back to the County Court Judge, but both parties appealed.

The normal route of appeal would have been to the Court of Appeal. However, the argument on the question of intention partly involved authorities determined at the highest level of the court system (then the House of Lords, now the Supreme Court), which the Court of Appeal would be bound to follow. The Tenant therefore sought and secured permission to pursue what is known as a leap-frog appeal. Instead of going to the Court of Appeal, the tenant was permitted to go straight to the Supreme Court, which could reach a different conclusion to that of the House of Lords previously.

In its decision, the Supreme Court agreed with the House of Lords’ previous decisions that the Landlord’s motive was irrelevant. The Court however considered further what it means for the Landlord to “intend” to carry out works. It confirmed that the intention must be unconditional, and concluded that since the Landlord accepted it would not carry out the works if it did not have to, its intention was not unconditional.

The Landlord seemed to have quite a good answer to this (and on which it succeeded in the High Court). It argued that since the Landlord’s intention was to be determined as at the trial date, and by that time it was evident that the Tenant was not going to leave voluntarily, its intention was then unconditional. The Supreme Court was not persuaded. It took the view, given the inclusion in Ground (f) of the words “and that he could not reasonably do so without obtaining possession of the holding”, the Landlord’s intention must exist independently of the Tenant’s claim for a new lease.

How will this case change things?

The Landlord in this case was frank that it would not carry out its scheme of works if it did not need to. However, the Supreme Court’s decision would seem to prevent any future landlord seeking possession based on works designed solely to remove the tenant – they will necessarily not be independent of the tenant’s claim to a new lease, but designed specifically to circumvent it.

This decision will not however, prevent landlords from carrying out works to facilitate some other arrangement, such as the landlord occupying itself or agreeing a new lease with a different tenant. It seems likely that there will be a renewed focus by tenants on whether the landlord’s intention really is unconditional. It is doubtful that will be satisfied in the future by the giving of an undertaking at trial.