A Ground breaking decision or not?

Insights - 24/01/2019

Franses Limited v The Cavendish Hotel (London) Limited

Graham Halsall explores a recent Supreme Court decision which could have far reaching implications for lease renewals under the Landlord and Tenant Act 1954 (the “1954 Act”).

The case of Franses Limited v The Cavendish Hotel (London) Limited is one which has received a great deal of attention. The main reason for all the interest is because this is the first time the Court has been asked to consider a landlord’s ability to oppose a new lease on the basis of a contrived intention to develop, formulated only for the purposes of removing the tenant.

The Law

Under the 1954 Act, a tenant of commercial premises has security of tenure. This means that (among other things) the lease does not end on the contractual end date; rather it continues unless and until terminated in accordance with the 1954 Act. The underpinning principle of the 1954 Act is the preservation of the tenant’s business. This of course has to be balanced against the right of the landlord to maximise its interest in the property. For that reason, the landlord can remove the tenant by opposing the grant a of new lease on the basis of certain statutory rounds. One of those grounds is “Ground F” – i.e. the landlord intends to redevelop the premises. This is one of the most common grounds on which a lease is opposed.

In order to succeed on Ground F, it is sufficient for the landlord to demonstrate to the Court a “firm and settled” intention to develop. The key word here is “intention”. It means that the landlord may not actually go on to develop the property. It also means that the landlord’s motivation for the development should be irrelevant.

This idea of intention only was stretched in the case of Franses.

The Facts

The tenant in this case was a textile art dealership operating from premises directly opposite the Fortnum and Mason building in St James, London. The business was a family business established in the early 20th century and had operated from the premises in question for over 30 years. Their long established tenure seemed to be coming to an end however after the landlord served notice to terminate the lease, under Ground F.

The landlord had initially proposed a substantial development, but the planning permission was refused. This would have all but scuppered any prospect of forming an intention to develop under Ground F. Undeterred, the landlord proposed an alternative development scheme; one which didn’t require planning consent. This involved things like the artificial lowering of the basement floor slab and the demolition of an internal wall and its replacement with an identical wall. All of this, as it turned out, was a façade designed to formulate the requisite intention under Ground F. In other words, the landlord wanted the tenant out and was prepared to carry out pointless works in order to achieve that objective.

The landlord even accepted in evidence that the works would not be carried out if the tenant vacated the premises voluntary.

So the question before the Court was whether this kind of contrived intention was capable of satisfying Ground F.

Decision

The Court found in favour of the tenant. It considered that the intention in this case was not of the nature or quality required by ground (f). Rather, the true intention was to remove the tenant. To allow this kind of approach would be to effectively allow the landlord to “buy out” the tenant. That was not, the Court decided, in the spirit of the 1954 Act.

Comment

This case has been watched with very close attention and much has been made of the decision. On one hand, the decision is hardly surprising when you consider the underpinning principle of the 1954 Act. Interpreting legislation to give effect to parliamentary intention is not exactly ground breaking. On the other hand, the decision goes against the grain in terms of the cases before it. The decision is surprising in that it affirmed that the landlords “development motive” is irrelevant and acknowledged the landlord’s right to develop its property in whatever way that pleases him. So the decision is ground breaking in that sense.

What the case does show is that landlords needs to be serious about redevelopment in order to succeed under Ground F. The case might also be significant in affording tenants a bit more confidence in challenging landlords on the authenticity of their development intentions.

Therefore, I think this decision has the potential to lead to more disputes concerning Ground F, particularly if there is a suggestion that the development intention is tactical or contrived.

If you have any questions or would like to discuss any of the issues raised in this blog, please feel free to contact Graham Halsall, Partner within our Dispute Resolution team. Graham is contactable by telephone on 01737 854 577 or by email on [email protected]

 

 

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