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16th January 2019

Landmark decision makes it harder for landlords to use reconstruction as a way to kick out protected tenants

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The Landlord and Tenant Act 1954 provides business tenants with protection in that it permits them to stay in the premises they occupy following the contractual expiry date of their tenancy and/or request a new tenancy on the expiry of the current tenancy.  

The landlord is obliged to grant a new tenancy, unless it can rely on one or more of six grounds in section 30 of the Act.

One of these is ground (f).  Ground (f) requires the landlord to show a firm and settled intention, at the time of the court hearing, to demolish or reconstruct the premises or a substantial part of them (and the practical ability to do this) such that vacant possession would be required. 

What did this mean before Franses v Cavendish

Before Franses, landlords could rely on ground (f), safe in the knowledge that even if the only purpose for works was to remove the tenant, and, accordingly, even if the works were so ridiculously impractical as to undermine the previous integrity of the premises, the tenant would be forced to relinquish its place of business. 

Arguably, the ability to rely on ground (f) in this way cheapens the tenant’s statutory protection so much that it may as well not even exist (albeit that the tenant does receive compensation in return for vacating), and this mood permeated the judges’ reasoning in this case.

In Franses, the tenant used the premises as an art gallery.  The landlord admitted that the proposed works had no practical utility and were intended solely to regain the premises, as vacant possession may serve as a catalyst to facilitate future discussions about expanding the hotel that already occupied the building’s remaining floors.

The Supreme Court held that where the commercial reality is that the landlord is throwing money around to obtain vacant possession, it cannot be right that ground (f) should be available.  The question is, ‘would the same works still be carried out if the tenant left of its own accord?’ and this is the litmus test on which the ability to rely on ground (f) should fall.

Prior to Franses, intention to carry out works was the only relevant factor, with the motive behind it only relevant for testing the genuineness of that intention.  Franses ensures the landlord’s motive is also relevant for assessing the conditionality of its intention.  If the intention to undertake redevelopment is conditional on the tenant leaving the premises, ground (f) will not be triggered. 

Future intention

But, in this case, the landlord was considering turning the entire building into a hotel…

Yes, and if the landlord had shown the firm and settled intention to do this at the court hearing, ground (f) would have been available, but carrying out works simply to remove the tenant as leverage for future development discussions is not what ground (f) is for.

Nature of the works

The litmus test is to ask whether the same works would be carried out irrespective of the tenant leaving voluntarily.  This means where the proposed works are intended for a purpose unrelated to vacant possession, but the landlord makes the works more laborious purely to ensure they are substantial enough to require vacant possession, ground (f) could only be relied upon for the main works. This caveat comes with a requirement for differentiation between “necessary works” and “superfluous works” that did not exist before Franses.

The question that remains is, ‘is the work substantial enough to require vacant possession?’.

Crystal-ball-gazing aside, the additional question now required is, ‘is the work suitably substantial, or are spurious additions being factored in to ensure vacant possession?’. 

It is fair to say that this could require complex assessment, impacting on the level of expert intervention needed in these cases.  Clearly, however, when the landlord is, as in the Franses case, (1) making works substantial enough to ensure vacant possession, but avoid planning permission, (2) knocking down walls and building virtually identical ones nearby, and (3) constructing steps with no practical value, the line between necessity and excess may not be wildly difficult to establish.

Silver Lining for Landlords

Obviously the Franses case is sympathetic to tenants, but landlords should take comfort in the following:

  • The judgment was keen to make clear that the landlord’s desire to remove a tenant will not usually be a reason to disqualify it from relying on ground (f).

    It is understood that the wish to demolish and/or reconstruct a premises involves a plethora of commercial considerations, and that one of those is likely to be tenant departure because inevitably the impetus for carrying out works is often to attract a tenant with deeper pockets. 
  • There is nothing wrong with the intention to carry out demolition or redevelopment being conditional on the occurrence of some other event.  As long as landlords are not carrying out works purely for the removal of tenants, ground (f) is available. 
  • The case confirmed the already established principle that the tenant has no remedy in a situation where the landlord does not carry out works that it had honestly intended to undertake at the time of relying on ground (f).
  • A peripheral point is the judgment’s implicit endorsement of the approach in Fisher v Taylor’s Furnishing Stores Ltd [1956] that where the landlord wants vacant possession to occupy its premises itself, but it cannot rely on ground (g) because it has not owned the freehold for a minimum of five years, ground (f) can be used instead, providing there is a genuine intention to undertake works. 

This is surprising in that it seems inadvertently to authorise an unbridled circumvention by landlords of ground (g)’s five-year rule, as long as the landlord is prepared to undertake works alongside occupation.  Given that this significantly destabilises the efficacy of ground (g), this could be a “watch this space” scenario, but for now this remains a perhaps helpful loophole for landlords.

What may we expect to see?

  • Landlords being more cautious about recording reasons for their intention to carrying out demolition / redevelopment
  • Requirement for more extensive input from experts
  • A significant reduction in landlords coming to court demonstrating their intention to undertake redevelopment via plans to undertake convoluted, unnecessary works with no practical amenity.
  • An increase in landlords relying on ground (f) in lieu of ground (g)?

This more creative precedent for interpreting the 1954 Act has been a long time coming, especially when the literal interpretation left tenants wide open to the vulnerability of landlords embarking on ridiculous reconstructions just to obtain vacant possession.

To assume Franses will stop landlords from reconstructing premises just to get rid of their tenants would be to wear rose-tinted glasses.  However, for landlords to rely on ground (f) the courts will now need to be satisfied that they have another reason for their intentions – and this can only be a good thing for tenants.

For more information on the issues raised in this article please contact Danielle Eley on 01223 461155 or click here to email Danielle.