Inclusive Technology v Williamson [2009] EWCA Civ 718

Inclusive Technology creates a potential problem for landlords who are trying to evict secure tenants following the process prescribed by the Landlord and Tenant Act 1954 (the "Act"). The Court of Appeal has overturned a High Court decision and found in favour of a tenant, directing that the landlord should pay compensation to the tenant for failing to inform him when he decided not to go ahead with the redevelopment which had formed the basis of his statutory ground to refuse the tenant a new lease.

S.30(1)(f) and the evidential hurdles

By way of background, where a tenant has security of tenure under Part II of the Act, the tenant is entitled to a new tenancy at the expiry of his current one unless the landlord can prove one of the grounds of opposition set out in Section 30(1). The relevant ground here was Section 30(1)(f), namely that on the termination of the current tenancy the landlord intends to demolish or reconstruct the demised premises and cannot reasonably do so without obtaining possession. There are a number of evidential hurdles for the landlord including; showing that the works he wants to do fit into the statutory definition, establishing that he is not able to simply work around the tenant but actually needs vacant possession, and proving that he has the requisite intention to do the works within a reasonable time after the termination of the tenancy. Intention must be "fixed and settled", and the landlord should be able to show a reasonable prospect of being able to bring about the desired result.

These criteria need to be satisfied at the date of the hearing, albeit the landlord will have indicated his intention to rely on ground "f" when he served his S.25 Notice on the tenant, many months (even over a year) before the trial is likely to take place.

Compensation provisions under S.37A

Whereas tenants who lose their security under Subsections 30(1) (e), (f) and (g) of the Act are famously compensated by S.37 of the Act, there has been negligible use of (or commentary about) the compensation provisions in S.37A which are specifically designed to assist a tenant who has suffered as a result of the landlord's misrepresentation or concealment of facts.

Inclusive Technology v Williamson [2009] EWCA Civ 718

In the case of Inclusive Technology, the tenant's lease of Units 1 and 2 Gateshead Business Park, Delph was due to expire in January 2007. In February, and again in April/May 2006, the landlord, Williamson, indicated to the tenant in conversation that he was planning refurbishment work and in June 2006, he served a hostile S.25 Notice on the tenant quoting ground "f" as the statutory ground for refusing the tenant a new lease, and giving 31 January 2007 as the termination date. He served the S.25 Notice together with a covering letter which referred to the previous exchanges about the works and said that it would be "necessary to obtain vacant possession to carry out the intended work".

By the end of September, the landlord, concerned about the cost of the works and a change in market conditions, decided to postpone his plans indefinitely and put the property up for sale. He did not communicate this decision to the tenant.

At the end of November 2006, in the belief that he had no choice but to leave, the tenant signed a lease for new premises in the local area and vacated the Gateshead Business Park premises. In the circumstances no Court proceedings were issued under the Act, and the landlord secured vacant possession of the premises. Due to a lack of suitable alternatives, the move resulted in a rent hike for the tenant.

When the works did not start after a few months, the tenant carried out his own investigations and discovered what had happened. He accordingly started proceedings for compensation under S.37A.

The High Court judge found in favour of the landlord. This was based on a finding that there was no misrepresentation or concealment as required by S.37A. He considered that the landlord's intention was genuine and accurate when he served the S.25 Notice and covering letter, and there was no obligation on him to inform the tenant when he changed his mind.

The Court of Appeal agreed that a S.25 Notice itself does not constitute a "representation" – its purpose is to inform the recipient what ground will be relied on at a future hearing, and it is not until the future hearing when the requisite state of mind must be proved. Accordingly, a landlord who only serves a S.25 Notice in isolation of any other communication will not be at risk under S.37A. The Court did say nonetheless that the Notice should only be served in good faith.

However, it was the covering letter in this case which was fatal to the landlord's position. The Court considered how contract law determines when a statement of intention can amount to a statement of fact. It was held that the letter constituted a representation that the landlord intended to do works and that possession was required. Furthermore, this was a "continuing representation", such that if it became untrue then there was a positive duty on the landlord to correct it. This was because the representation was made in the midst of a statutory process and was being relied on by the tenant. It was analogous to a representation made before a contract is entered into and relied on by one of the parties.

The Court also commented that the lalord is entitled to say nothing at all to a tenant to supplement his S.25 Notice, although that was not encouraged because it would make settlement difficult and litigation more likely. The tenant was awarded the difference between the rent for the new premises and the rent for Gateshead Business Park over the next six years, reduced for early receipt.

Implications of the Case

This case is very significant in today's market when redevelopment plans are being put on ice throughout the country. Any number of ground "f" S.25 Notices may have been served in the first half of last year in respect of properties which have not since been redeveloped as anticipated due to the sudden drop in the financial and property markets.

It is clear from the Court of Appeal decision that a landlord can find himself liable to a tenant under S.37A without any malice or deliberate attempt to mislead. All that is required is that in addition to serving his statutory notice, the landlord makes a "representation" about his intention to do the works, and that the tenant relies on this representation in leaving the demised premises. Only in a minority of cases is a S.25 Notice neither accompanied by an explanatory cover letter nor succeeded by an exchange of correspondence in which the tenant asks the landlord questions about his plans and the landlord responds.

There arises a layer of uncertainty now in that a landlord such as Williamson in Inclusive Technology would no doubt be under the impression that the matter was resolved once the tenant had moved out of the premises and time moved on. In that case there was no Court involvement until the proceedings were issued by the tenant company some months later. Prior to that, there had been simply a S.25 Notice served and the tenant's subsequent vacation of the premises in accordance with the Notice, and yet it was still open to the tenant to effectively re-open the matter by way of his claim for damages.

Another situation that can arise (familiar to the writer from experience) is that a landlord wins his case at a hearing by proving all the elements required by the statutory ground, the tenant loses possession of the property but then the landlord changes his mind and does not do the works after all. Presumably the Court Order "trumps" the continuing representation in the way that the conclusion of a contract would and so following the Order, the landlord is free to change his mind at will. It goes without saying of course that he should not perjure himself to get the Order!

As regards quantum, the case did not deal with whether the tenant had received any statutory compensation for vacating the premises pursuant to S.37 of the Act or whether if it had done so, this sum would be deducted from the S.37A compensation awarded.

Advice to Landlords and Tenants

Advice to landlords must be to keep tenants as well informed as possible about their plans once they have served a hostile S.25 Notice. This also applies to landlords relying on other available statutory grounds, particularly ground "g" stating that the landlord needs the property back to occupy himself.

If plans are postponed so much that the landlord will not be able to clear the evidential hurdles at the hearing date, he needs to tell the tenant BEFORE the tenant incurs losses relocating in reliance on the S.25 Notice.

In addition, landlords should be very careful about what they include in correspondence to the tenant, perhaps avoiding committing any expressions of intention to writing until as late as possible. This is a balancing exercise because at the same time the landlord wants to encourage the tenant to leave without contesting the Notice and will need to give the tenant sufficient information to persuade him.

Advice to tenants should be to keep an active interest in their landlord's plans - if necessary carrying out their own independent investigations. If the tenant has just vacated premises following receipt of a S.30(1)(f) based hostile S.25 Notice and there is no sign of the landlord starting work, then the tenant may find reason to seek compensation. It will of course depend on the landlord's state of mind and when he (if he has) changed his mind. If the tenant has not yet vacated, it may be worthwhile asking the landlord for an update in case he no longer needs empty premises and he can save himself the cost and inconvenience of relocation. If the landlord restates his intention to develop and yet still fails to do so, this would further strengthen the tenant's chance of a successful claim.