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25th February 2015

Using the redevelopment ground to oppose lease renewals

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If a business tenant has security of tenure, one ground on which the landlord can oppose the grant of a new lease is that he intends to demolish or reconstruct the premises.

This is an important ground which landlords frequently use. The Courts have considered what is required to rely on it in detail and, in Richard Hough v Greathall Limited, the Court of Appeal recently considered when the landlord must prove his intention. Although the Court seemed just to be considering the effect of a small change in statutory wording, if they had decided differently it could have had significant consequences for developer landlords.

A tenant under a business tenancy with security of tenure under the Landlord and Tenant Act 1954 has a right to a new tenancy when the current tenancy ends. The landlord can only oppose renewal on limited grounds set out in section 30 of the Act. Section 30(1)(f), or “ground f”, states that the landlord can oppose a lease renewal if, when the current tenancy ends, he “intends to demolish or reconstruct the premises… 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”.

To rely on ground f the landlord must show that he has a firm and settled intention and a reasonable prospect of achieving this. It’s not necessary to be in a position to start the development immediately, but the landlord should, for example, have thought about the outstanding issues and be able to show that they won’t be too big a hurdle to overcome. Evidence of his intention could include a business plan, planning permission or demonstrating that he has obtained financing or vacant possession of other parts of the development site.

The requirements are quite onerous and so the question of when the landlord has to prove his intention is important. A 1959 case decided that the time for establishing the intention to redevelop was the date of the court hearing. However in 2004 the Act’s wording changed. Did this make a difference?

Before the change, the landlord had to state in a notice whether he “would oppose” a tenant’s application for a new tenancy and, if so, the grounds on which he “would do so”. Now the landlord’s notice has to state the grounds on which he “is opposed” to the grant of a new tenancy. The tenant in this case argued that therefore the relevant date for ascertaining the landlord’s intention is now when the landlord serves his notice. The Court of Appeal disagreed.

At the same time as this wording was changed, the requirement for a tenant’s counter-notice was abolished. In the Court’s view this was the only reason for the change in wording. The old provisions used “would” because a landlord, when he served the notice, would be waiting to see whether the tenant would serve a counter-notice stating its unwillingness to give up possession. Once the counter-notice provisions had disappeared, “would” was no longer needed. Parliament did not intend to make any other change to the legal position.

So for now the date on which the landlord must show his intention to redevelop the property remains the hearing date. This should be a relief for those seeking to rely on ground f. If the landlord had to prove his intention to redevelop when he served his notice, he would probably need to speed up his redevelopment plans so as to have got together enough evidence at that point, months or years before he actually obtains vacant possession, and that of course presumes he does regain possession in the end.

Perhaps this cautionary tale of what might have been is a good reminder to landlord developers using ground f to start thinking of how to prove their intention to redevelop at an early stage, even if they won’t actually have to do so until the hearing.

For more information please contact Martin Smith on 01223 461155 or click here to email Martin.

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