Supreme Court finds for tenant in Cavendish Hotel dispute

A landlord can defeat a lease renewal on development grounds only where it intends to carry out the works regardless of whether or not the tenant vacates voluntarily.

The Supreme Court has handed down its eagerly-awaited judgment in S Franses Ltd v The Cavendish Hotel (London) Ltd, the facts of which we covered in our previous article Contrived development scheme defeats renewal of business tenancy. The resulting decision, in favour of the tenant, may surprise practitioners.

In essence, the landlord opposed the renewal of Franses’ business lease using section 30(1)(f) of the Landlord and Tenant Act 1954. This provides:

'that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding'.

The landlord admitted that the works, which would cost over £770k (plus statutory compensation of £324k payable to the tenant), were devised purely to obtain vacant possession of the premises from Franses, and not for any separate commercial reason. Indeed, they would result in the premises being commercially unusable.

The scheme was devised by the landlord to be sufficiently substantial to qualify under ground (f) and to avoid the need for planning permission for external works. The property as redeveloped would be of no practical utility, as planning permission for change of use would be needed to use it, and the landlord did not intend to apply for such permission. While the works would be expensive, property values in locations such as West London meant getting vacant possession made economic sense.

The judge, at first instance, found that the landlord genuinely intended to carry out the works if they were necessary in order to get rid of the tenant, but it did not intend to carry them out if the tenant agreed to go voluntarily. The landlord gave a written undertaking to the court that it would carry out the works if a new tenancy were refused.  

At first instance and in the High Court, it was found that the court was concerned only with the landlord's intention to carry out the works, not its motive in doing so. The tenant appealed and was granted permission for a leapfrog appeal straight to the Supreme Court, bypassing the Court of Appeal.

The Supreme Court had to decide whether it was open to the landlord to oppose the grant of a new tenancy, if the works which it said it intended to carry out had no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.

Decision

In a unanimous decision, the Supreme Court allowed the appeal, meaning the tenant must now be granted a new lease.

The court said ground (f) requires a firm and settled intention to carry out the scheme of works being proposed. The landlord’s purpose or motive is immaterial except to test whether the intention required by ground (f) exists. It is irrelevant whether a landlord’s intention is reasonable or whether reasonable changes to the scheme could be made so as to allow the tenant’s continued possession. 

However, ground (f) assumes that the landlord’s intention to demolish or reconstruct the premises is being obstructed by the tenant’s occupation. This is exemplified by the words “could not reasonably do so without obtaining possession of the holding” and by ground (f) not being satisfied if the landlord could carry out the works by using a right of entry agreed with the tenant.

Therefore, it is not sufficient for the landlord to have an intention to undertake the works only if the tenant does not voluntarily vacate - in other words, for the landlord’s intention to be conditional. This would not be a firm and settled intention.

The landlord’s intention to undertake the works must exist independently of the tenant’s presence: it must intend to undertake the works whether or not the tenant voluntarily vacates. That was not the case.

The court highlighted that that the facts were extreme. A less extreme but more common situation would be where the landlord intends to undertake some works, but artificially increases their scope so that the tenant cannot remain in possession, resulting in a mixture of conditional and non-conditional intention. Although all cases turn upon their own facts, in such a case only the works that the landlord intended unconditionally to carry out would be relevant for the purposes of ground (f). Such intention would need to be tested by means of evidence at trial.

Comment

This is an unexpected outcome, but can be readily understood from a policy perspective. If the appeal had been refused, landlords wanting to obtain vacant possession could simply give their tenants a schedule of works substantial and disruptive enough to require their vacating the premises. Tenants would have no incentive to apply to court, and would instead recognise defeat and leave voluntarily, depriving them of the protection the Act was designed to provide.

Tenants whose renewals are being opposed on ground (f) will now be pushing for full disclosure of their landlord’s development plans. Any evidence that, but for the tenant, the development would be carried out in another way, may help the tenant defeat the ground.

It remains unclear why the landlord in this case did not oppose under ground (g) - that it intended to occupy the premises for its own business. After this decision we may see more case law based on that ground. 

S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62