Last year saw a titanic clash between two oil heavy weights fighting to secure the profits from a highly lucrative oil terminal in the Humber Estuary. The litigation, which went to the Court of Appeal in May, served to provide useful guidance on several legal issues, most interestingly, what a Landlord needs to show to demonstrate its intention to take back the premises and to occupy these premises for the purposes of its own business (i.e. the operation of ground 30(1)(g) of the Landlord and Tenant Act 1954 (“the Act”)).
This ground comprises a two part test for a Landlord to establish intention, namely:
- Does the Landlord have a fixed and settled intention to occupy the Property for business purposes? and
- Would the reasonable person believe the Landlord has a reasonable prospect of achieving the desired result?
In this case the Tenant, Humber Oil, held a lease of an oil terminal. The Landlord served notice under s25 of the Act opposing the renewal of the lease relying on ground (g), namely that on the termination of the current tenancy, the Landlord intended to occupy the terminal for the purposes of its business.
A key issue for the trial judge and the Tenant’s subsequent appeal, was whether the Landlord had established its intention to occupy and manage the oil terminal itself with a view to continuing the maintenance and supply to the existing refineries, as well as to open the oil terminal to third party users. Humber Oil argued that the Landlord had not made out:
- the first limb of the test by demonstrating a “fixed and settled intention” and asserted that the Landlord was still exploring whether it could make use of the terminal itself if Humber did not agree to work with the Landlord
- the second limb of the test that it had established a reasonable prospect of successfully implementing its intention without Humber’s assistance, its equipment, infrastructure and expertise in circumstances where Humber had vowed not to co-operate with the Landlord to facilitate the Landlord’s implementation.
The Court of Appeal disagreed with Humber and held that the Landlord had indeed established both elements of the two stage test to demonstrate intention. It found that the Trial Judge was entitled to find that it was quite probable that economic considerations would persuade Humber to ultimately co-operate with the Landlord and that Humber would not incur the significant costs of removing its equipment if ground (g) was made out. Both Courts considered that despite Humber’s grievances, the opportunity to pursue profits would be the deciding factor resulting in Humber ultimately co-operating with the Landlord in pursuit of profits.
This decision serves as a warning to Tenants that even where the premises are unique and the Tenant has tailored its business for those particular premises, the occupation by a Landlord to enable the Landlord to effectively take over a Tenant’s business can be found to be permissible.