Acting in Good (F)aith

Summary

S Franses is a tenant seeking a new lease under the Landlord and Tenant Act 1954 (the 54 Act). The Cavendish Hotel (London) Limited (The Cavendish) is the landlord and objects to a new lease on the basis that it is going to carry out redevelopment works and requires possession in order to do so (ground f).

The kicker, as they say, is that The Cavendish would only do the works in order to satisfy ground f and to obtain possession. The works had been created, planned and promised to serve no benefit other than to satisfy ground f, but the tenant had to leave anyhow. The Cavendish has no intention of carrying out the works if the S Franses gave up possession of the premises. The County Court and the High Court have both held that The Cavendish has demonstrated the necessary intention to carry out the works, as understood from the 54 Act and case law on the topic.

S Frances has been granted permission to appeal to the Supreme Court, leap-frogging the Court of Appeal because of the long line of precedents set by the Court of Appeal and House of Lords in these types of cases.  The matter was heard on 17 October 2018 and judgment is to be handed down on Wednesday 5 December 2018.

Facts

The Appellant is the aforementioned textiles and textile art dealership and consultancy. The Respondent is a hotel, which describes itself on its website as “proud to continue providing contemporary and stylish 4 star accommodation in central London whilst sitting comfortably with its history amongst the elegant gentleman’s outfitters of Jermyn Street”.

S Franses occupies premises which form part of hotel on the ground and basement floors, on the crossroads with Duke Street. The Appellant tenant served notice to renew its tenancy, which is afforded protection under the LTA 1954. The Respondent landlord sought possession of the premises on one of the permitted grounds under s 30(1) of the LTA 1954, namely that it intended to demolish or reconstruct the premises on the termination of the current tenancy (ground f). The landlord gave an undertaking that the works would be carried out if possession was granted. The court originally held that the landlord had established the requisite intention even if it only intended to carry out the works if they were necessary to satisfy ground f and the works had no other commercial objective. S Frances appealed.

Upshot

S Franses will say that the 54 Act has to be interpreted in a way which requires the landlord to demonstrate something greater than the condition intention set out above. The works should serve some sort of commercial purpose or benefit to the works, over and above a literal statement to satisfy ground f. The meaning of ‘benefit’ could be very broad, even uneconomic, but is essential nonetheless.

S Franses will say that if a landlord is not required to demonstrate any commercial benefit whatsoever to the works, it can put forward any old scheme of works to compel a tenant into leaving and settle its intention to do so by giving an undertaking to do those works if the tenant does not leave.

It seems to us that this may not quite be the purpose of the ground f exception or the 54 Act itself, which was to provide security to commercial tenants.

Why might this be important?

Most commercial landlords who simply want possession of the premises and use redevelopment as a ground to obtain it will usually settle on a scheme which provides an acceptable future for the property and also happens to fulfill ground f such that the scheme of works are independent of the tenant’s claim for a new lease. If S Franses wins, where part of the proposed works demonstrate no independent benefit, the court will be obliged to ignore it for the purposes of considering whether ground f is met. It may also mean that landlords’ motives will be more intensely scrutinised and those using ground f as a front for other plans.

(Note: This article was written by Ben Hillman and Alexander Coles in our Real Estate Litigation team.)