Where a business tenant has the protection of Part II of the Landlord & Tenant Act 1954, their conduct can impact on their right to seek a new lease; a serious breach of a tenant’s obligations under an existing lease entitles the landlord to oppose the grant of a new business tenancy.

The three grounds under which a tenant’s breach could be directly relevant to their right to a new tenancy are:

  •  repair and maintenance of the holding (section 30(1)(a) of the 1954 Act);
  • persistent delay in paying rent (section 30(1)(b) of the 1954 Act);
  • other substantial breaches of obligations under the tenancy (first limb of section (1)(c) of the 1954 Act).

While one would expect serious breaches of obligations under a current lease to prejudice a tenant’s right to seek a new lease, what happens if the tenant’s conduct is seriously reprehensible, but the subject-matter of that behaviour lies outside compliance with the strict terms of the current tenancy? Would it still be fair to both parties to allow such other conduct to be taken into account? Should a landlord be obliged to grant a new lease to a tenant with whom his relationship has already broken down? Parliament addressed this issue in the second limb of section 30(1)(c). That provision allows a landlord to oppose an application for a new lease where ‘The tenant ought not to be granted a new tenancy … for any other reason connected with a tenant’s use or management of the holding’.

All these provisions are important to landlords, not least because successful opposition to the grant of a new lease on these grounds does not give the tenant a right to compensation under section 38 of the 1954 Act. Helpfully, the recent Court of Appeal decision of Horne & Meredith Properties Ltd v Cox [2014] EWCA Civ 423 considered the second limb of section 30(1)(c) (which is the subject of relatively little case law and is often overlooked).

In Horne & Meredith, there had been a long history of substantial disputes between the landlord and tenant over a right of way included within the current tenancy. The Court of Appeal was asked to consider whether these disputes amounted to ‘any other reason connected with the use or management of the holding’, so entitling the landlord to oppose the grant of a new tenancy.

RIGHTS OF WAY

The Court of Appeal first had to consider whether a right of way contained in the current lease came within the definition of ‘the holding’. The definition of the holding is found in section 23(3) of the 1954 Act which provides that ‘the holding’ means ‘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 …’

The Court of Appeal has previously considered the treatment of incorporeal hereditaments such as rights of way and rights to use parking spaces: see, for example, Pointon York Group Ltd v Poulton [2006] EWCA Civ 1001; [2007] 1 P. & C.R. 6. One of the issues in Pointon was whether occupation of car parking places for business purposes could amount to ‘occupation’ for the purposes of the 1954 Act in order to afford the tenant statutory protection. In Pointon, the court decided that such incorporeal hereditaments could form part of the ‘property comprised in the tenancy’ and also could be occupied. The car parking spaces, therefore, fell within the definition of the holding in that case.

In Horne & Meredith, Lewison LJ dealt with the position rather differently. He did not ask whether a right of way could come within the definition of ‘property’ and then whether it had to be disregarded because it was not ‘occupied’. Instead, he simply noted that ‘… normally incorporeal hereditaments are incapable of being occupied by anyone, so they do not fall to be subtracted from the property comprised in a tenancy in order to identify the holding’. He, therefore, decided that the right of way was part of the holding in this case, leaving the way clear to find that a dispute over the right of way was conduct capable of justifying the refusal of a new lease.

THE TENANT’S CONDUCT

The behaviour of the tenants in Horne & Meredith had been quite extraordinary. They had been the claimants and aggressors in 10 pieces of litigation brought against the landlord over the right of way during a period of 16 years. The Court of Appeal noted that:

  • the trial judge described that history of litigation as concerning ‘very spurious or exaggerated legal infringement …’ concerning the right of way that had been allegedly infringed; 
  • the cost to the landlords had been ‘absolutely colossal’; their costs for one set of proceedings alone had been approximately £300,000;
  • the proceedings had included ‘wholly baseless allegations of fraud’;
  • the tenants’ conduct had been such that they were now subject to a limited civil restraint order.

In the proceedings at first instance, the parties had both agreed that their relationship had wholly broken down and the judge found that the tenants would continue with their pattern of litigation if granted a new lease. Naturally, any landlord would wish to avoid having a continued legal relationship with such a party. The trial judge had no difficulty in refusing the grant of a new lease. Was this decision correct?

SCOPE OF THE SECOND LIMB OF SECTION 30(1)(C)

The Court of Appeal previously decided that it may be appropriate to refuse the grant of a new lease if to do so would unfairly saddle the landlord with a tenant with whom he was in constant litigation: see Eichner v Midland Bank Executor & Trustee Co Ltd [1970] 1 WLR 1120. Lewison LJ restated this principle in Horne & Meredith as follows: ‘Where, as here, the litigation is itself concerned with vindicating rights granted under the tenancy, that litigation is in my judgment connected with a tenant’s use and management of the holding.’

While that finding was sufficient to dispose of the appeal, the court went on to make useful comments about the circumstances in which such conduct would be so serious that the tenant ‘ought not to be granted a new tenancy’: ‘The phrase, ‘ought not’ does in my mind suggest that there would usually be some fault or culpability on the part of the tenant. The overall question under this head is whether it would be fair to the landlord, having regard to the tenant’s past behaviour, for him to be compelled to re-enter into legal relations with the tenant.’

The mere existence of litigation, or even substantial litigation, would not be enough. For example, if the landlord had been the aggressor in the litigation, or if the tenant’s litigation had been ‘responsibly and proportionately conducted’, the answer to that question may well be no.

COMMENTARY

The decision reassures landlords that courts will take a broad approach when considering whether conduct by the tenant can potentially give rise to a ground to oppose the grant of a new business tenancy. However, minor or isolated infringements of tenant obligations have never been sufficient to justify refusal. The position is the same for conduct that does not directly amount to a breach of the tenants’ obligations.

Moreover, this remedy is only likely to be available in severe cases where there is some ‘fault or culpability on the part of the tenant’. The decision in Horne & Meredith is, therefore, unlikely to give rise to a flood of new litigation based on the conduct of the tenant.

This article was published in The Landlord & Tenant Law Review in August 2014