(Not so) Faulty Towers

S Frances Limited -v- The Cavendish Hotel (London) Limited [ 2017 ] EWHC 1670 (QB) High Court (on appeal from The Central London County Court)

Summary

The landlord opposed the grant of a new business tenancy to the tenant on the ground of redevelopment. It was clear from the evidence that the landlord’s scheme was contrived in order to satisfy the statutory provisions entitling the landlord to oppose renewal.

Although there would be no practical use for the premises once the works had been carried out, the High Court still upheld the County Court decision that the key point was the landlord’s intention to do the works - even where the works had no real commercial purpose. This was in part due to an undertaking given by the landlord to the Court that the works would be carried out.

The case continues as the appeal was upheld on other grounds, so the tenancy remains alive for now.

The facts

The tenant occupied premises opposite Fortnum & Mason in St James’. Its premises formed part of a building that trades as a hotel. The tenant operated a textile dealership, a use which was specifically promoted by Westminster City Council. Planning permission would be required for any change of use.

The tenant occupied the premises under two leases, both of which expired on 2 January 2016. The tenant served notices requiring a new business tenancy to be granted, which the landlord opposed on the ground set out in Section 30(1)(f) (“Ground F”) of the Landlord and Tenant Act 1954, often referred to as the “redevelopment” ground. The main points to note about this ground are that the works must be sufficient to qualify under the Act, must contain some structural element, and must not be feasible unless the landlord has possession of the premises.

The landlord devised various schemes to justify its ground for possession. However, it became clear that planning permission for its most recent scheme would not be granted and, therefore, the planning application was withdrawn.

The landlord then devised a new scheme for internal works which would not need planning permission except for change of use in due course. It was clear on the evidence that this scheme was contrived simply to satisfy Ground F.

For example, the works included:

  • the artificial lowering of the basement floor slab;
  • the repositioning of a smoke vent;
  • the demolition of an internal wall at ground floor level followed by immediate replacement with a similar wall;
  • the construction of a new central wall dividing the two proposed units 2 metres short of the shop front to avoid the need for planning permission.

The landlord accepted in cross-examination that these works would not actually be carried out if the tenant left voluntarily. However, it also stated clearly that, if it were successful in the proceedings, the works would be carried out. The landlord gave a written undertaking to the Court for that purpose.

The first decision

The County Court found in favour of the landlord on the basis that it clearly intended to do the works if it obtained an order for possession. The Court held that it did not matter if the works did not serve any commercial purpose or if the scheme were motivated simply to satisfy Ground F. What mattered was the fact that the works were to be carried out if possession was ordered.

The appeal

The tenant appealed on nine grounds. The most relevant are set out below:

  • The first ground of appeal was that the landlord’s intention was not sufficient because it was conditional on the works being necessary in order to satisfy Ground F. The High Court Judge found that, although the intention of the landlord had been mischaracterised by the County Court Judge, it was clear on the facts that the works would be carried out by the landlord bearing in mind the compelling undertaking that it had given. If the landlord had failed subsequently to carry out the works in compliance with the undertaking, it would be in contempt of Court. For that reason, it was not appropriate for the High Court to interfere with the County Court’s findings that the landlord had demonstrated sufficient intention.

However, the High Court upheld the tenant’s appeal on two of its other grounds:

  • Established case law demonstrates that it is necessary for the landlord to prove that it is able to commence the Ground F works within a reasonable period after obtaining possession.

In this case, the County Court had found that 12 months would be a “reasonable time”. The tenant argued in the appeal that this period was too long and that the County Court had applied the wrong legal test. The High Court found that the landlord’s evidence had been insufficient and that further findings of fact were required.

  • Secondly, in identifying the nature of the landlord’s works, it is necessary to disregard any works that the landlord could carry out pursuant to its rights of entry under the lease. The tenant argued that the County Court had failed to take this into account. The High Court agreed with the tenant.

These issues are now the subject of an appeal by both parties.

Our comments

The most interesting point is the first ground of appeal, and it is this which has generated the most legal discussion. The purpose of the security of tenure provisions provided by the Landlord and Tenant Act 1954 was to provide tenants with protection - but not at the expense of redevelopment. However, can it really have been the intention that completely artificial and worthless development schemes can be used to evict a business tenant?

This may now be a question for the Supreme Court to answer, as the tenant has made an application for permission to leapfrog the Court of Appeal and have the case heard by the Supreme Court given the importance of this point.

In parallel, both parties have also applied for permission to appeal to the Court of Appeal. Clearly the fight is far from over.