The High Court has ruled that a landlord's development scheme, contrived for the sole purpose of defeating a tenant's security of tenure, was effective to oppose the tenant's right of renewal.

The case S Franses Ltd v The Cavendish Hotel (London) Ltd was decided earlier this month.

Facts

S Franses Ltd ('Franses') is a leading dealership and consultancy in historic textiles, tapestries and carpets. It is a long-standing occupant of the corner unit of the Cavendish Hotel, a prestigious location in London.

Franses occupied the premises under two leases, each of which expired in January 2016. Both leases benefited from security of tenure under the Landlord and Tenant Act 1954 which means that Franses had a statutory right to renew the leases. Its landlord could only oppose that renewal and regain possession if it could prove one of a limited number of statutory grounds for objection in respect of each of the leases.

Franses served requests to renew its leases, under section 26 of the Landlord and Tenant Act 1954. Both requests were opposed by the landlord under section 30(1)(f) of the 1954 Act. This allows a landlord to oppose a tenancy on the grounds:

'that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding'.

HHJ Saggerson at the County Court at Central London ruled that the landlord had made out its intention to carry out substantial works to the property at the end of the tenancies and that it would be impossible to do so without obtaining vacant possession.

Franses appealed. At the High Court, Mr Justice Jay allowed the appeal and sent the claim back to the County Court for further findings of fact.

Decision on Ground (f)

Of most interest to commentators is the county court's finding that the scheme of works had 'been designed with the material intention of undertaking works that would lead to the eviction of the tenant regardless of the works' commercial or practical utility and irrespective of the expense [and] some aspects of the intended works have been contrived only for the purposes of ground (f).'

Franses argued that, in view of this, the landlord's intention under ground (f) was not properly made out because Parliament had not intended 'to allow wealthy landlords to subvert the protection which it was conferring on business tenants, by promising to do works for the sole purpose of getting the court to make an order under the Act dismissing the tenant's claim for a new tenancy'.

But the High Court disagreed and dismissed this ground of appeal. Crucially, it held that the court was only concerned with the landlord's intention to carry out the works, not its motive in doing so. The court only has to look at what the landlord intends to do and whether he intends to do it, not at why he intends to do it.

What does this mean?

Some commentators describe this decision as disturbing because it illustrates the possibility of a landlord contriving an unrealistic and commercially unworkable development scheme just to defeat a tenant's right of renewal. Provided there is an honest intention (or undertaking to the court) to carry out the development scheme, it can be sufficient to defeat a claim for a new tenancy, even if the works are then immediately reversed.

In fact, this case does not make new law and suggestions that it introduces an artificiality to the grounds of opposition under the 1954 Act or even that it renders the Act defunct, overstate its impact.

The reality is that the 1954 Act contains no anti-avoidance provisions. This means there is potential to exploit other grounds of opposition under the Act. By way of example a landlord could contrive a reason to occupy a property: so long as that intention could be made out, it would be able to oppose an application for a new tenancy under section 30(1)(g) of the Act.

It seems odd that in this case the hotel owner did not oppose under ground (g) on the basis that it intended to occupy the property for its own retail operation, perhaps through a franchise. Such an intention need not be permanent and it is likely to have been much simpler to prove and execute.