A landlord who allowed its tenant to remain in occupation after expiry of its contracted-out lease, will be relieved that they successfully opposed the lease renewal application.
The tenant’s occupation had become protected, however the Landlord managed to establish the discretionary grounds (a) (disrepair) and (c) (breach of covenant) in section 30 (1) of the Landlord and Tenants Act 1954 (the “Act”) in order to successfully oppose the renewal.
In the recent case of Kent v Guest  EWHC 51 (Ch), the property to be let consisted of 40 acres of land used as stables for the racing industry. In fact, they are located very close to where I live. The property was let on a one year lease and it was intended to be contracted outside the Act but there was a failure to comply with the contracting- out notice procedure. At the end of the term, the tenant refused to vacate.
A few months later the landlord served a section 25 notice on the tenants opposing the lease renewal on ground (a) (disrepair under section 30(1)(a) of the Act) and ground (c) (breach of obligations under section 30(1)(c) of the Act). The landlord argued that the property had fallen into a poor state of repair and that there had been a breach of the user provision in the lease (without the landlord’s consent). In addition, there had been a number of alterations made to the property without the landlord’s consent and the tenants had not insured the property. To top it off the tenant had also ignored warnings from the local authority about burning waste on the property. As you can see there was quite a charge sheet compiled against the tenant.
The judge at first instance in the county court used its discretion to find for the landlord. It was held that the tenant ought not to be granted a new lease in light of the alleged breaches. The tenant then appealed on the grounds that the disrepair was not serious; and the other breaches on which the landlord sought to rely had not been found to be “substantial” by the county court judge as required by section 30(1)(c). The tenant also alleged that the judge had failed to exercise its discretion separately under grounds (a) and (c).
The High Court was not impressed by the tenant’s submissions. It was held the correct approach was for the landlord to establish the factual position relevant to the grounds of opposition (which in this case were (a) and (c)) and then for the court to consider whether in light of the breaches the tenant should be granted a new lease. The court took the view that the discretion of the court under grounds (a) and (c) did not need to be exercised separately and it was acceptable for the court to consider the breaches collectively when deciding whether the tenant should be granted a new lease. It was said even if the judge’s discretion was to be exercised separately there were sufficient reasons in each individual breach to entitle the judge to reach the same conclusion. Whilst the judge did not specifically use the word “substantial” to describe the breaches it was clear to the High Court that he regarded them as sufficiently serious, to oppose renewal.
This case is a reminder of the importance of ensuring that if intending that a new lease is to contracted-out of the Act all the legal formalities are correctly complied with. Also, that on expiry of an existing contracted out lease the tenant must either vacate or enter into a new contracted -out lease, again ensuring all the formalities are undertaken. If a contracted-out lease expires, and the tenant remains in occupation there is a real risk that the new lease will become protected and the tenant entitled to all the protections to remain in occupation that the Act provides. The odds are against a Landlord who does not take appropriate legal advice to ensure the contracting out is legally effective.
For those of you who are racing enthusiasts you will recognise the appellants name as one Richard Guest who won the 2001 Grand National on Red Marauder at 33/1. It was a memorable race for the fact only 4 horses completed the course. I have included the horse’s odds as I am pleased to say I (for once) backed the winner that day.
If you have any queries relating to holding -over, contracting -out or other commercial property matters do not hesitate to contact Susanne Hinde on 01223 532728 or Stuart Simoes on 020 4526 4987 or another member of our commercial property team.