Key point

  • A history of litigation, usually instigated by the tenants, against the landlord over 16 years counted as a reason "connected to the user or management of the holding", giving the landlord the ability to refuse to grant a renewal lease.
  • Given that a refusal under ground (c) means that no compensation is payable, it might be a useful device for landlords to use if circumstances permit.

Background

As a general rule, if the requirements of section 23 of the Landlord and Tenant Act 1954 (LTA 1954) are satisfied, and the lease is not otherwise "outside" of the LTA 1954, the tenant of commercial premises has a statutory right to be granted a renewal lease upon expiry of its lease. In the event that the landlord does not grant a renewal lease, the tenant may be entitled to receive compensation from the landlord. Whether this compensation is payable or not will depend upon the reason for the landlord's refusal to grant the new lease.

These reasons - known as "the grounds" - are set out in section 30(1) of the LTA 1954. Litigation involving this section usually relates to ground (f), where the landlord wishes to redevelop the tenant's premises.

The Court of Appeal has had a rare opportunity to consider the meaning of ground (c). This states that "... the tenant ought not to be granted a new tenancy in view of other substantial breaches by him of his obligations under the current tenancy, or for any other reason connected with the tenant's use or management of the holding."

Horne & Meredith Properties Limited v Cox and another

Over the course of some 16 years, the parties had spent hundreds of thousands of pounds in litigation which related mainly to two rights of way and six parking spaces to the rear of a shop in Bridgnorth, near Stoke on Trent. The tenants felt that this on-going litigation was necessary to uphold their legal rights; the landlord felt it was a menace which led to the complete breakdown of the landlord and tenant relationship.

When the term of years granted to the tenant by the lease came to an end, the tenant was entitled to a renewal lease under the LTA 1954. However, the landlord refused on the basis of the second limb of ground (c): "...other reasons connected to the use or management of the holding".

The landlord acknowledged that there were no breaches of any of the covenants of the lease. Rather, it wanted to refuse the renewal lease because of the stream of litigation brought by the tenant. The landlord applied to the local county court, pursuant to section 24 LTA 1954, by way of commencing the lease renewal proceedings.

His Honour Judge Peter Main QC held that the history of litigation between the parties could indeed be a reason for refusing a new lease under the LTA 1954. In his opinion, the "the First Defendant's approach to litigation has grotesquely exceeded any reasonable balance or judgment on his part".

The tenants appealed, but the Court of Appeal has upheld the first instance decision.

"... any other reason"

Lewison LJ, giving the leading judgment, considered whether the second limb of ground (c) should be given a narrow or wide interpretation. His view - relying on the case of Turner & Bell v Searles Ltd - was that the court was entitled to interpret the statute widely. As per the case of Eichner v Midland Bank Executor and Trustee Co, the history of litigation between the parties was something that could be taken into account.

In Eichner there was, in addition to historic litigation, a number of breaches of covenant by the tenant. This meant that both limbs of ground (c) were engaged. Relying on this, the tenants in the present case argued that the court could only consider the second limb of ground (c) if there was also a breach of covenant. However, applying the case of Beard v Williams, the Court of Appeal disagreed. It held that the second limb of ground (c) can stand alone.

Counsel for the tenants also argued that, if the court refused a renewal lease in these circumstances, there was a danger that the floodgates could be opened for landlords to refuse a new tenancy based on any sort of litigation between the parties. Lewison LJ disagreed. The LTA 1954 provides a safety mechanism (which Lewison LJ described as more of a value judgment than a discretion) in the first part of ground (c) in the words "that the tenant ought not to be granted a new lease" (emphasis added). This allows the trial judge - if it is just and equitable in all of the circumstances - to order that a new tenancy will be granted even if ground (c) is otherwise made out.

The "holding"

Lewison LJ considered the term "holding", as referred to in the second limb of ground (c). Was the historic litigation over the rights of way and the parking spaces connected with the "holding"?

Section 23 LTA 1954 defines this as "the property comprised in the tenancy, there being excluded any part thereof which is occupied neither by the tenant nor by a person employed by the tenant and so employed for the purposes of a business by reason of which the tenancy is one to which this Part of this Act applies." Did the rights of way and the right to use the car parking spaces form part of the holding?

Both are incorporeal hereditaments, which means they are not capable of physical occupation.  However, it was decided in the case of Pointon York Group v Poulton that the right to park is a property interest which is capable of occupation in a technical sense.  Similarly, there is the case of Nevill Long & Co v Firmenich which is authority for a right of way constituting "property" for the purposes of section 23 LTA 1954.

Lewison LJ therefore held that both sets of rights formed part of the holding, which meant that all elements of the second limb of ground (c) were found to be made out.

Things to consider

There is no doubt that this was a strange case. Such was the breadth of the previous litigation between the parties - almost always instigated by the tenants - that the relationship between the parties had completely broken down. Even the tenants admitted, while giving evidence, that the litigation would continue if granted a new tenancy.

The Court of Appeal agreed with Lord Denning in Eichner when he said: "It must be considered very carefully whether it is fair to saddle the landlord with a tenant with whom he is in constant litigation". In this case, it was held not to be fair.

That is not to say that other cases, where litigation is a factor, will be decided the same way. However, the case should serve as a useful reminder to landlords of the existence of ground (c). And we have an indication that the court will consider ground (c) widely.

Given that ground (c) carries with it no requirement upon the landlord to pay compensation to the tenant if a new lease is not granted, it must surely be worth landlords considering including it as a ground of opposition in addition to others.