The Supreme Court has now passed a judgement on the anticipated Landlord and Tenant Act 1954 (the “Act”) case of S Franses v The Cavendish Hotel. The case concerns a landlord’s capacity to oppose a lease renewal under the Act using the redevelopment provisions of section 30(1)(f) (“Ground F”) and the appeal was escalated to the Supreme Court, not being heard in the Court of Appeal, due to its significance.
S Franses (the “Tenant”), a leading textile dealership and consultant was seeking a new lease of its showroom, archive and retail store at 80 Jermyn Street, London (the “Property”). The Tenant has sold tapestries from the Property, which falls within Westminster Council’s Special Policy Area affording it distinct protection as a niche retail business and art gallery, for over 25 years.
In accordance with the lease renewal procedure under the Act, the Tenant requested a new lease to be granted on expiry of the old lease. Cavendish Hotel (the “Landlord”) opposed the Tenant’s request by relying on Ground F, arguing that it intended to complete substantial construction work at the Property and so required the Tenant to vacate.
Curiously, the Landlord made it clear from the outset that its motivation for redeveloping the Property was only to make use of Ground F and reject the Tenant’s request for a new lease. It admitted that if the Tenant had not requested a new lease, it would not have undertaken the scheme as it was solely designed for the purpose of frustrating the Tenant’s claim for a renewal tenancy. The question for the court was whether the Landlord’s intention to carry out the works was sufficient for it to rely on Ground F.
Prior to this decision, there was a well understood distinction between intention and motive, such that Ground F only required a Landlord to show a firm and settled intention to carry out the works, regardless of its reasons for doing so. At first instance and on appeal, the court was certain that the Landlord genuinely intended to complete the works, because it had given an undertaking to do so, breach of which would be contempt. The Landlord’s motive to gain vacant possession of the Property did not disturb the effect of Ground F.
The disclosed motive did, however, shed light on the conditionality of the Landlord’s intention. The Landlord would not have carried out the works if the Tenant had voluntarily left the Property and this meant that its intention, though genuine, was conditional on the Tenant’s request for a new lease and refusal to vacate the Property. The Supreme Court held that this conditionality was fatal to relying on Ground F as the Landlord’s intention was no longer firm and settled. It is now clear that the test to be applied when considering the opposition of a new tenancy under Ground F is whether the landlord would intend to do the same works if the tenant left voluntarily.
The judges of the Supreme Court acknowledged that there would be cases where landlords contrive development plans but are not as honest about whether or not these plans are dependent on the tenant’s refusal to vacate a premises.
This is, on balance, a welcome outcome for corporate occupiers, as the case gives reassurance that their requests for new tenancies cannot be objected unless a strict conditionality test is applied and then satisfied. Should a landlord intend to rely on Ground F, it can still design a scheme for the sole purpose of vacant possession but it must demonstrate to the court that it intends to carry out, and take steps to implement, those works irrespective of whether or not the tenant leaves the premises. In practice, landlords might now only provide details of the scheme to an occupier when finalised, as it is likely that tenants will scrutinise background information to uncover the true intention behind such scheme. If this information is not forthcoming, a tenant can request disclosure of all documents relevant to the question of the landlord’s intention in court proceedings and argue that a scheme is of no practical or commercial value to the landlord.
It is now likely to be demanding for landlords to establish and then succeed in a claim under Ground F as the new rule on conditionally will apply toward each constituent part of the proposed works in addition to the scheme as a whole – this will challenge those schemes where certain elements of works are created just to satisfy the redevelopment test in Ground F. The protection granted to tenants by the Act has been reinforced and their ability to contest a hostile lease renewal will be enhanced, however, as a result of the ruling in S Franses tenants should expect protracted negotiations and be aware of the risk of unfavourable terms from landlords who may become unwilling to grant leases with the benefit of security of tenure.