A tenant of business premises may have the right to renew its lease under the Landlord and Tenant Act 1954. The landlord can only object to a renewal on the limited grounds set out in the Act. One ground, "ground f", allows the landlord to object to a new tenancy if, on the termination of the current lease, it intends to demolish or reconstruct the premises, or carry out substantial work of construction.

In Inclusive Technology v Williamson, the landlord served a notice on the tenant under section 25 of the Act terminating the tenant's existing tenancy, and stating that it would oppose the grant of a new tenancy on ground f. The notice was accompanied by a covering letter in which the landlord set out its intention to carry out refurbishment works.

The court found that, at the time the notice was served in June 2006, the landlord had a genuine intention to refurbish the premises. However, by September, the landlord had become concerned about the cost implications of the work, and decided to "hold fire". He still intended to carry out the works, but in the future, when circumstances were right.

The effect was that the landlord was no longer in a position to rely on an intention to carry out the works at the end of the tenancy within ground f. However, the tenant was not informed of the landlord's change in position. At the end of November, the tenant signed a lease of other premises, at a higher rent than it had been willing to pay for a renewal of its existing lease.

Section 37A(2) of the Act provides that where the tenant leaves the premises because of misrepresentation or the concealment of material facts, the court may order the landlord to pay compensation to the tenant. This is in addition to the compensation which the landlord would ordinarily have to pay under section 37 as a result of refusing a new tenancy on ground f.

The court applied general contractual principles to the application of section 37A. A statement may be made by a prospective party to a contract which is true at the time, but which, to the knowledge of that party, ceases to be true before the contract is entered into. In those circumstances, a failure to inform the other party of the change will amount to misrepresentation. In the same way, in this case, the representation made by the landlord was a continuing one, which had to be corrected by the landlord if it subsequently became incorrect.

The court made clear that not every case in which a section 25 notice specifying ground f is served will give rise to such a continuing obligation on the landlord's part. The landlord is entitled to specify ground f in the notice but say nothing else. In that situation, while the notice must be given in good faith, it is no more than a warning to the tenant of the ground on which the landlord may seek to rely in court.

In this case, however, prior to service of the notice the landlord had been open with the tenant as to his plans. The covering letter which accompanied the notice was a clear statement of the landlord's intention at that time, which amounted to a continuing representation.

The Court of Appeal ruled that the purpose of section 37A(2) was to encourage fair dealing between the parties. The tenant's legal rights under the Act depended, at least partly, on the landlord's subjective intentions. This would be open to abuse unless the landlord acted responsibly and in good faith.

On that basis there had either been misrepresentation or concealment, which had led the tenant to give up possession. The court awarded compensation to the tenant based on the difference between the rent it was paying for its new premises and the rent it had been prepared to pay for a new lease of its old premises.

Things to consider

The well-known case of Betty's Cafés Ltd v Phillips Furnishing Stores Ltd established that, in order to rely on ground f, it is not necessary for the landlord to establish an intention to redevelop at the time of service of its section 25 notice. The notice is simply to be taken as an indication of the landlord's intention to rely on that ground at a court hearing, if it comes to that.

The court in Inclusive Technology ruled however that, in this case, it was established that the landlord did have the relevant intention at the date of service of the notice. Furthermore, Betty's Cafés was decided at a time when the Act did not contain provision for compensation in circumstances where the tenant decided not to pursue the matter to court, but simply to accept the landlord's notice at face value and move out. In 2004 the Act was amended so that under section 37A(2) a tenant may now obtain compensation for misrepresentation whether it makes an application to court for a new tenancy which is later withdrawn, or whether it does not make such an application at all.

It seems unfortunate that the landlord in this case was penalised for its openness with the tenant about its plans for redevelopment in the months up to service of the notice. However, it could be argued that if the landlord was able to have such a dialogue with the tenant, it should also have informed the tenant when its plans changed.

The court emphasised that a representation as to a landlord's intention to renovate or refurbish would not become untrue simply by reason of the landlord exploring other commercial options. There is no duty on the landlord to give periodic updates to the tenant as to the progress of planning applications, finance negotiations, etc. However, in this case, it was clear that the landlord no longer intended to carry out the works at the end of the lease, and so could not oppose the grant of a new lease on ground f.

Landlords are free to change their minds – but if they have made representations to tenants which therefore become false, they must inform the tenant.