The Landlord and Tenant Act 1954 provides a number of statutory protections for occupiers of property for business purposes. These include the entitlement to remain in occupation after the termination date, as the tenancy does not come to an end, unless it is terminated in accordance with statutory procedure set out in the 1954 Act. That procedure requires a landlord wishing to terminate the tenancy to specify the grounds on which new leases should not be granted to the tenant.  One such ground is where the landlord intends to occupy the property wholly or partly for the purposes of a business to be carried on by him.

The recent High Court case of Humber Oil Terminals Trustee Limited v Associated British Ports [2011] EWHC 2043 (Ch) 1187 considers the circumstances in which such intention is demonstrated.

The leases

The case, which consisted of opposed business lease renewal proceedings, involved four leases of properties comprising parts of the Immingham Oil Terminal (IOT) in the Humber Estuary. The IOT is the UK’s busiest port by volume.  About 20 million tonnes of oil pass through each year, to and from two local refineries: the Lindsey Oil Refinery (owned and operated by Total UK Limited) and the Humber Oil Refinery (owned and operated by ConocoPhillips UK Limited).

Conoco and Total formed a joint venture company known as Humber Oil Terminals Trustee Limited (HOTT), which was the tenant under the leases. The most important of the four leases related to the Immingham Oil Jetty, which extends for a kilometre into the Humber Estuary, and has been operational since 1969. There had only been one rent review, 25 years into the 40 year lease term.

Statutory protections

The statutory provisions of the 1954 Act protected HOTT's leases.  As the tenant occupying the IOT for the purposes of its business, HOTT would be entitled to remain in occupation after the termination date, unless the tenancy was terminated in accordance with statutory procedure set out in the 1954 Act.

The landlord, Associated British Ports (ABP), sought to terminate the leases, and accordingly served appropriate notices under section 25 of the 1954 Act.  In accordance with the statutory provisions, ABP stated its intention to occupy the property for its own business purposes as the reason for opposing the grant of new tenancies to HOTT. 

The finance implications

ABP contended that HOTT was not operating the terminal efficiently.  ABP intended to occupy and manage the IOT itself, to provide port facilities and services for the import and export of oil for third party users, as well as ensuring continuity of supply for Total and Conoco.

The parties had already been in dispute over the level of rent in the event the leases were renewed.  ABP proposed that the combined annual rents under the four leases should increase from £4.2 million to £23.7 million.   HOTT argued the rent should be reduced to £3.03 million per annum.

HOTT had applied to the court for the grant of new tenancies under the 1954 Act, almost a year after the first section 25 notice was served by ABP terminating the lease of the Jetty. HOTT’s claim was that ABP could not prove intention "to occupy the holding for the purposes, or partly for the purposes, of a business to be carried on by him therein, …" as stated in section 30(1)(g) of the 1954 Act.  HOTT asserted that under the terms of the lease of the Jetty, HOTT would be entitled on termination to remove its complex system of pipes, equipment and infrastructure, which would cost circa £10 million. ABP would then have to spend more than £60 million to replace what had been removed, and this would take two years to carry out, meaning it was not possible to occupy for some time after the termination of the existing leases, making ABP unable to comply with the immediacy envisaged by the 1954 Act.

What constitutes intention?

The High Court had therefore to ascertain the preliminary question of ABP's intention.  The factual circumstances demonstrated that ABP had a "genuine, firm and settled" intention to occupy the IOT for the purposes, or partly for the purposes, of a business to be carried on by it at the termination of the leases. Various previous court analyses of the meaning of intention were called upon in reaching the decision.  It did not matter whether ABP re-occupied the IOT on its own account, or whether it appointed sub-contractors to operate the technical pipeline, or used the services of Associated Petroleum Terminals (Immingham) Limited, another joint venture company between Conoco and Total, which had been established to operate the IOT.  The important point was that ABT would be in possession of its own land and dealing with it commercially as it sees fit.

The court was of the opinion that the parties would be guided by economics and commercial reality and may come to a commercial arrangement.

The decision was based on ABP's evidence that it was motivated by the need to obtain value for its port facilities, to generate further competition and to attract third party customers to the IOT. The suggestion that ABP's plans were "aspirational or embryonic" might be relevant in a case where the landlord was "impecunious or insubstantial", but ABP was a major port operator with substantial financial backing.  It was not for the court to decide whether ABP’s stated objective would be successful or economically viable, provided that it had a reasonable prospect of being fulfilled. The difficulties ABP might encounter in achieving its objectives in maintaining continuity of supply to the refineries and widening access to the IOT were apparent, but this did not detract from its clear intention.

A fair application

This is an interesting case from the point of view of both landlords and tenants. Although it contains no new law, it is a reminder of the court’s approach to the question of a landlord’s “intention”, when a landlord is seeking to oppose the grant of a new business tenancy based on the landlord's repossession for his own use.

On the question of a landlord's intention, it is not for the court to determine whether such intention constitutes a prudent business decision, provided it has a reasonable prospect of being fulfilled.  In addition, the courts consider the situation from the point when the landlord would be entitled to possession, upon the termination of the existing tenancy. While there is authority that intention may be no more than contemplation if the obstacles appeared too great to overcome, the court concluded that situation would not apply in this case, given the range of possible uses of the port facilities and ABP's business experience in this field.

It is the policy of the 1954 Act to protect a tenant's interest in property when it has set up business there.  The 1954 Act sets out a limited number of grounds for opposition to the grant of a new lease.  The 1954 Act strives to ensure fairness in the application of these grounds.  However, where the evidence shows clear intention and willingness on the part of the landlord to occupy, the 1954 Act will equally operate to protect the rights of landlords as it does to protect the rights of tenants.

To read the decision in Humber Oil Terminals Trustee Limited v Associated British Ports click here.