Third party redevelopment meant lease renewal could be opposed

A recent case has confirmed that a landlord was entitled to oppose its tenant's lease renewal under the Landlord and Tenant Act 1954 where redevelopment of the site was to be undertaken by a third party.

Background

The case of Santander UK PLC v LPC Estates Ltd concerned the security of tenure afforded to business tenants under the Landlord and Tenant Act 1954. This act gives a business tenant the right to remain in occupation once its lease has ended and the right to request the grant of a new lease on existing terms. A landlord is only entitled to refuse a request for a new lease on specific and limited grounds set out in section 30 of the act.

One of those grounds - ground (f) - requires a landlord to prove that, on the termination of the current tenancy, it intends to substantially demolish or reconstruct the premises to such an extent that it could not reasonably do so without first obtaining possession of them.

Facts

Santander was the tenant and LPS was the landlord of commercial premises. After the expiration of its lease, Santander requested the grant of a new lease and LPC opposed the grant based on ground (f). In fact LPS had entered into a building lease with a third party. And so it relied on proving its intention to redevelop by obliging a third party to carry out the redevelopment works. If this would satisfy ground (f), it meant that the landlord could effectively terminate the existing tenancy in favour of a new tenant.

The specific issue for the court to decide was that of intention to redevelop, and at first instance LPS, the landlord, was successful. Santander appealed to the High Court arguing that the outstanding appeal in the case of S Franses Ltd v Cavendish Hotel (London) Ltd [2017] EWHC 1670 QB was relevant and that its case should not be decided until the outcome of that appeal was known.

We wrote about the Franses case in our article Contrived development scheme defeats renewal of business tenancy.

The judge disagreed with the comparison made to the Franses case. He explained that the issue to be decided in the Franses appeal is whether a landlord's intention to develop required to satisfy ground (f) is satisfied where the works are a contrivance to prove ground (f).

The issue in Santander was different. The issue here was whether the intention to develop was satisfied where the landlord did intend the work to be carried out but it had chosen that it should be carried out by a third party by means of a building lease, deliberately for the purposes of satisfying ground (f). There was already strong legal authority on the point, most recently from the Court of Appeal in Spook Erection Ltd v British Railways Board (1988) 1 EGLR. 76 CA.

In the Spook case, the landlord wanted to redevelop its property. It served notice to terminate the existing lease stating that it opposed the grant of a new tenancy on ground (f). At the time of service of the notice, it was the landlord's intention to sell the property to developers. By the date of the hearing, because the tenant had refused to move out and to sustain its ground of opposition, the landlord had entered into a building agreement with a supermarket operator who agreed to redevelop the site and to take a new lease on completion of the works (a building lease).

The Court of Appeal held that the landlord had proved its firm intention to carry out the works even though it had entered into a building lease to get around paragraph (f).

In Santander, the High Court was bound to follow the earlier Court of Appeal decision in Spook as a matter of legal precedent unless it could be distinguished on the facts or there was a real prospect that an even higher court - the Supreme Court - would overturn the decision. Neither was the case.

Comment

Landlords will be relieved that the Spook decision has been upheld and the law remains clear in allowing a landlord to grant a building lease to a third party to do the works required by ground (f).

We await the Supreme Court's decision in S Franses Ltd v Cavendish Hotel (London) Ltd to clarify whether, to satisfy ground (f), the intention to carry out works must be motivated by something other than a need only to prove the statutory ground of opposition. This appeal is due to be heard in October 2018.

Santander UK plc v LPC Estates Limited [2018] EWHC 2193 (Ch)