Any landlord or tenant at all familiar with the workings of security of tenure under the Landlord and Tenant Act 1954 knows that a landlord who intends to redevelop can successfully prevent a tenant renewing its business lease under what is known as ground (f).
The recent case of S Franses Limited v The Cavendish Hotel (London) Limited is an interesting and vivid illustration of how ground (f) can potentially be used by a landlord who wants vacant possession at all costs, and the arguments that a tenant desperate to stay can try to deploy in defence.
The case is interesting as a stark reminder that it is the landlord's intention, not motive, that counts, but it will often pay the tenant to focus in detail on what precise works are to be carried out, and when.
The tenant was a well-established antique textile dealer with a ground floor unit at Jermyn Street, London. The landlord ran a hotel from the remainder of the building and was extremely keen on obtaining VP. Accordingly, a notice terminating the tenant's lease and opposing renewal on ground (f) was served.
Ground (f) is satisfied if a landlord can show it intends to do (in broad terms) substantial work to the demised premises "on the termination of the current tenancy", and needs possession of the premises to enable it to carry out the scheme.
Here, the landlord brazenly proposed a scheme of redevelopment work that had no commercial purpose, save so as to constitute appropriate "substantial work" within the meaning of ground (f) to ensure that VP could be obtained. For instance, the landlord proposed demolishing an internal wall but (by reason of planning restrictions) only partially rebuilding it.
The tenant raised a number of arguments against the landlord, both in the original County Court hearing and, again, on appeal to the High Court. Of particular interest were the tenant's arguments that:
- The landlord could not be said to be genuinely intending to do a scheme of works that it admitted it would only do if the tenant refused to vacate voluntarily, and that was concocted simply so that ground (f) could be satisfied, but for no other reason.
- Works that the landlord could do anyway under its right of entry under the lease could not be taken into account in the Court's assessment of whether substantial work was intended.
- The fact that it appeared that the landlord would take a considerable time after lease termination to solve certain planning and other consenting issues should not be overlooked by the Court when deciding whether the landlord intended to do the works " on the termination of the current tenancy".
Genuineness of intention and motive – why?
It has been well-established, even before this case, that a landlord has to demonstrate an intention to carry out ground (f) works, but its motive for carrying them out is irrelevant. If the motive appears suspect, that might affect whether the Court would ultimately believe that the landlord had a genuine intention, but nothing more.
Given this established state of the law, the tenant in the Franses case found it impossible effectively to criticise the landlord for having an intention to do the works simply out of a motive to get VP rather than as part of any wider commercial scheme. Indeed, the fact that the landlord gave a legally binding undertaking to the Court to carry out the works proved conclusive on the genuineness of the landlord's intention.
The tenant attempted to argue, rather ingeniously though perhaps somewhat desperately, that an intention to do works only if the tenant does not vacate voluntarily (ie to do a scheme that would not be done unless it was necessary to satisfy ground (f) to get VP) was not a real intention at all. In other words, the landlord's intention was wholly conditional upon the tenant being unwilling to vacate voluntarily and a court order against the tenant being needed.
Ingenious though this argument was, it did not convince the High Court. The fact that the landlord would not carry out the works unless it succeeded in making out its ground (f) case did not mean that the intention is unacceptably conditional; all that needed to be judged was whether, as at the date of the hearing, the landlord genuinely intended to do the works. Because, at the hearing, the tenant still refused to vacate voluntarily, that intention was accordingly proved to be genuine and fixed.
Under the Jermyn Street lease the landlord had a right to enter the premises to do certain works. In his analysis of the works that the landlord intended to do, the County Court judge failed to distinguish between works that the landlord could enter to do under the terms of the lease, and works that it could not so do and thus required possession back from the tenant to be in a position to carry out .
Because of this confusion, the tenant was successful in this element of the appeal. It remains to be seen, however, whether the fact that the County Court judge will have to re-assess the scheme of works without those works that the landlord could do anyway under its right of entry will make any difference to their overall adequacy as works counting as "substantial" for the purposes of establishing ground (f). It seems quite possible that the landlord would have ensured that, even discounting these disqualified works, the remaining works were still sufficiently substantial for ground (f) purposes.
However, the case is a reminder that, in other scenarios, a tenant should carefully scrutinise a landlord's proposed scheme and strip out those works that the landlord can do anyway under the existing terms of the lease, focusing analysis on the remaining works. If those remaining works are insufficiently substantial, it is possible that the landlord's overall scheme could fail to satisfy ground (f).
To satisfy ground (f) the landlord must demonstrate an intention to carry out its works "on the termination of the current tenancy". This has always been taken as including a reasonable period after termination of the tenancy, as it is not to be supposed that a landlord must show it intends to start the works on the very day the tenancy ends. If for any reason the intention is incapable of being fulfilled in this timescale, then the landlord will fail to make out ground (f).
In the S Franses case, the County Court judge recognised that there were some outstanding planning and other consenting issues, and estimated these might take some 12 months for the landlord to solve before works could commence. However, the County Court was still prepared to conclude that ground (f) was satisfied as that 12 month timescale was a "reasonable period" after termination of the tenancy.
The tenant successfully challenged this conclusion on appeal. The High Court considered that the County Court judge had given no adequate explanation as to why 12 months was, indeed, a reasonable period. This might be a crucial question as, if it would indeed take 12 months to solve the consenting issues, then this might be outside the "reasonable period" leeway given to a landlord who must prove an intention to do redevelopment works "on the termination of the tenancy" including a reasonable period thereafter.
It remains to be seen whether, on any further hearing, this timing point deals a fatal blow to the landlord's case or not. However, it is a reminder that a landlord must show not just an intention to carry out the works, but also an actual ability to carry them out (with necessary consents in place) within a reasonable period of lease termination. What that reasonable period is will be separately assessed in each case, but a defending tenant should always consider carefully the timings within which a landlord will be able to obtain appropriate planning and other necessary consents.
The S Franses case makes no new law. Despite that, it has been taken by some commentators as signalling a significant new loophole in the 1954 Act by allowing a landlord to obtain VP through (some might say) cynically adopting a scheme of works which has no commercial purpose other than simply to obtain VP.
The position is less extreme than that; it has always been open to landlords to devise such schemes, but commercial and practical reality means that in the vast majority of cases, it will simply not pay landlords to go to the rather extreme lengths in the Franses case. Landlords who may now be tempted to propose such schemes to get VP will, however, need to remain fully aware that the Court will be sceptical as to the genuineness of any professed intention actually to do the proposed works. This means that a legally enforceable undertaking to do the works may well be required, to ensure that landlords do not purport to change their minds on whether to do the scheme once VP has been established pursuant to a ground (f) order. Landlords who do not really intend to do the works will not be able to give that undertaking, so such unrealistic schemes to get VP will ultimately fail.
The case is also a timely reminder to anyone involved in a ground (f) case that there is room for very detailed analysis as to whether ground (f) is satisfied or not. To successfully run (or defend) a ground (f) case, the parties, their lawyers and their agents/experts should be prepared to have to go into the "why, what and when?" of ground (f) in fine detail.