The end of the Landlord and Tenant Act 1954?

8 September, 2017
by: Cripps Pemberton Greenish

Commentators have called the recent High Court judgment in S Franses Limited v The Cavendish Hotel Limited [2017] EWHC 1670 (QB) the ‘end of the Landlord and Tenant Act’.  Although this commentary seems extreme, the final outcome of the case is still awaited as the High Court judge did grant a leapfrog certificate allowing the tenant to seek permission to appeal directly to the Supreme Court, indicating its importance.  It is not yet known when the appeal will be heard.  In the meantime, this case study will be of interest to both commercial landlords and tenants.

 

A lease protected by the Landlord and Tenant Act 1954 (“the 1954 Act”) gives security of tenure to tenants who occupy premises for business purposes.  The lease will not come to an end at the expiry of the term but instead will continue until it is ended by one of the ways specified by the 1954 Act, for example service of a landlord’s notice under section 25 or service of the tenant’s request for a new tenancy under section 26.  If the landlord opposes the grant of a new lease, one or more of the seven grounds of opposition in section 30 must be stated.

 

Facts

 

S Franses, a commercial tenant, occupied premises on the ground floor and basement of 80 Jermyn Street under a lease protected by the 1954 Act.  When the tenant’s lease expired on 2 January 2016 it served notice under section 26 of the 1954 Act for a new lease on 15 March 2015.  The landlord served counter-notice on 15 May 2015 and opposed the grant of a new lease under section 30(1)(f).  This ground states that “the landlord intends to demolish or reconstruct and could not reasonably do so without obtaining possession.”  This is the most frequently used ground of opposition by landlords.

 

Proceedings began in July 2015 and the landlord put forward various schemes for alterations and works.  For the purposes of the trial, the landlord put forward scheme 3 which entailed demolishing and putting up several new internal walls to create two retail spaces and demolishing a single staircase and creating two new staircases/lift shafts.  There was no separate entrance for unit 2 and visitors would be required to walk through unit 1 to gain access.  The judge at first instance found that “some aspects of the intended works have been contrived only for the purposes of ground (f).”  The landlord accepted in cross-examination that the works would not commence if the tenant left voluntarily.

 

9 Grounds of Appeal

 

  1. There was not sufficient intention on the landlord’s behalf to carry out scheme 3 because the works were only being carried out to satisfy ground (f).
  2. The judge was wrong to rely on an undertaking by the landlord to carry out scheme 3.
  3. The judge misunderstood information about the various schemes and this led to error when assessing the credibility of the landlord.
  4. The judge applied the wrong legal test in holding that a reasonable time for commencing works was within 12 months of obtaining vacant possession.
  5. The judge was wrong to hold that the scheme 3 works would constitute derogation from the grant of the current tenancies and/or breach of the covenant of quiet enjoyment.
  6. The judge failed to consider the new terms of the tenancy in determining whether the scheme 3 works could be reasonably carried out without obtaining possession.
  7. When considering whether scheme 3 fell within ground (f) the judge failed to consider which works could be carried out under the landlord’s right of entry.
  8. The judge failed to consider that one half of each of the party walls fell outside the holding.
  9. In accepting the landlord’s undertaking to carry out the works, the judge erred in principle by refusing to make an order for the tenant to access the premises to verify compliance.

Decision

 

While there were 9 grounds of appeal, it is the first ground that is the most controversial because the landlord effectively used the 1954 Act to rid itself of a tenant with security of tenure.

 

When considering ground 1, the judge considered the subjective and objective elements of the legal test for ground (f).  In order to rely on ground (f), the landlord must show that, on the termination of the tenancy:

 

  1. He has a firm and settled intention to carry out the relevant work.
  2. He intends to demolish or reconstruct the premises (or a substantial part of them), or to carry out substantial works of construction.
  3. He cannot reasonably carry out the works without obtaining possession.

 

It was held the correct analysis for the objective element is not that the landlord’s intention is conditional upon the termination of the tenancy (as the tenant put forward) but that it was conditional upon the works being necessary to satisfy ground (f).

 

As for the subjective elements, the intention must be genuine and that intention must be fixed, settled and unconditional at the time of the hearing.  The application of the word ‘unconditional’ was debated as the works were conditional on the landlord’s claim succeeding and achieving vacant possession.  It was concluded that when considering ground (f) the court is to consider the nature of the landlord’s intention at the end of the tenancy.  In other words, the fact that the landlord would not carry out the works if the tenant remained in occupation did not matter.

 

The appeal was dismissed, despite the judge agreeing that there was clear evidence that the works were intended to obtain possession and found that the various schemes lacked commercial viability and practical sense.

 

Until the appeal is heard, this may mean that landlords can use the 1954 Act to obtain vacant possession and get rid of tenants by concocting renovation schemes that could not be done without obtaining possession.