Key points

  • Subject to certain conditions, a landlord can recover possession from a tenant at the end of a lease if it wants to use the premises for its own business (known as ground (g) for the purposes of the Landlord and Tenant Act 1954)
  • Ground (g) can be used by a landlord to recover premises even where the business that the landlord intends to carry on at the premises is that of the tenant
  • The court does not have to decide whether the landlord's plans are financially viable or prudent, as long as they are genuine
  • The court is entitled to look at what will happen on the termination of the lease in order to decide whether the landlord's ground of opposition is made out
  • The fact that there might be a "lead time" in setting up the landlord's business will not necessarily defeat the landlord's claim
  • The fact that the landlord might, if it won, consider a higher offer for a new lease made to it by the tenant will not vitiate the landlord's intention to occupy the premises for the purposes of its own business

Background

Humber Oil Terminal Trustee Ltd v Associated British Ports involved a lease renewal under the Landlord and Tenant Act 1954 of some very unusual premises; an oil terminal at a port on the river Humber. The landlord owned and ran the port, and the tenant was a company which operated oil refineries linked to the terminal.

The landlord and tenant have been to court a number of times in connection with the ending of the lease (see our earlier alert, which related to a competition claim). The latest instalment in the litigation between the parties concerned proceedings under the 1954 Act. The landlord had served a section 25 notice to end the tenancy opposing renewal on ground (g) - that it intended to occupy the premises itself for the purposes of a business. The landlord intended to use the premises to provide port facilities for the tenant company, but also to open up the terminal to other third parties as well.

Under the lease, the tenant was entitled to remove its equipment at the termination of the lease. It was estimated that it would cost the tenant £10 million to remove the equipment, without which the premises could not be operated by the landlord. It would then cost in the region of £60 million and take about two years for the landlord to replace what the tenant removed.

Argument one - the landlord would accept a high offer for a new lease instead of running its own business

The tenant argued that the landlord only wanted to take back possession of the premises if an acceptable new rent could not be agreed. In other words, if the tenant made a high enough offer, the landlord would be prepared to contemplate a renewal of the lease. The tenant contended that this meant that the landlord did not have sufficient intention to occupy the premises for the purposes of ground (g).

The court thought that the tenant would be quite likely, if it lost the case, to try to negotiate a new lease. If it made a significantly more attractive offer than the landlord would achieve through running the port itself, the landlord would obviously consider it properly. However, that would not vitiate the landlord's intention at the time of the trial to re-occupy the terminal.

The court had to decide whether, if the landlord succeeded in the proceedings, it would in fact re-take possession of the premises, or whether it would simply use its success to agree a higher rent for the new leases. The court found that the landlord would not have gone through years of legal conflict unless it wanted to re-gain possession of the terminal, and accepted that its decision to re-occupy and run the terminal itself was genuine.

Argument two - the landlord's plans were impossible to implement in practice

The tenant also argued that transfer of the operation of the terminal to the landlord would be impossible, because existing staff at the terminal might not agree to the transfer of their employment, and the landlord would need access to IT and operational manuals which might not be made available. The landlord accepted that it would need these facilities, but said that it hoped that this could be negotiated.

Argument three - the landlord's business would not be financially viable

The tenant adduced expert evidence to the effect that a facility which was open to third parties at the terminal could not be operated in a commercially viable way. It therefore argued that the landlord did not seriously intend to carry on the proposed business at the terminal.

The court ruled that it was not appropriate for it to examine the financial wisdom of a landlord's genuinely held plans or decide whether it would be a prudent business decision. It only had to determine whether the landlord intended to occupy the terminal for the purposes of its business (not whether that business would be successful).

Argument four - the landlord could not rely on what the tenant might do if the lease were terminated, in order to decide whether the lease should be terminated

Case law has established that, in order to establish the necessary "intention" for the purposes of ground (g), the landlord must have decided to occupy the premises for the purposes of a business to be carried on by him and must have a reasonable prospect of being able to do so.

Whether the landlord had a reasonable prospect of operating the terminal itself in this case depended in part on what the tenant decided to do at the end of its lease if renewal was not granted. This included whether it would remove its equipment, whether it would co-operate with the landlord in terms of personnel, manuals etc, and even whether it would be prepared to go on using the terminal under the new terms of access.

The tenant argued that allowing the landlord to rely on what the tenant would or might do in those circumstances was circular, because it allowed the landlord to rely on what would happen if the landlord was successful, in order to decide whether the landlord should be successful. The court rejected this argument, and held that it was entitled to make findings of fact about what would be likely to happen at the termination of the tenancy in the event that the landlord was successful.

The court found that the tenant was a commercial organisation which would be guided by economics. It would not remove its equipment from the terminal, or close down its refinery operation there, simply to spite the landlord. The court found that the most likely scenario was that, in the event that the landlord succeeded in its claim under ground (g), it would agree a commercial arrangement with the tenant to enable it to continue using the terminal to service its refinery. In any event, the fact that there might be some element of lead time in setting up the landlord's business was not sufficient to defeat a reasonable prospect of that occurring.

The court also took into account the fact that the landlord was a major port operator with substantial financial backing, and found that the landlord would therefore be able to carry out its plans for the terminal.

Things to consider

In the previous competition proceedings, the tenant had argued that the landlord was using ground (g) as a means of forcing the tenant to accept abusively high rents and port access charges, and as a way of acquiring the tenant's business. The tenant claimed that this was an abuse of the landlord's dominant position as an operator of the port. The court held that mere reliance on ground (g) cannot of itself amount to an abuse of a dominant position. This decision is however being appealed by the tenant, and so despite the landlord's victory on ground (g) the lease will continue under the Act until the competition claim has been determined one way or the other.

It is to be noted however that the High Court in this case did not accept the tenant's arguments that the 1954 Act was not intended to allow a landlord to "appropriate" its tenant's business. It thought that it was part of the policy of the legislation that a landlord should be entitled to its land back if it genuinely wished to use the land for its business purposes, even if the landlord is a competitor of the tenant.