The Supreme Court handed down its much-anticipated decision in the case of S Franses Ltd v The Cavendish Hotel (London) Ltd in December 2018.
S Franses Ltd (“the Tenant”) occupied a unit on the corner of Jermyn Street and Duke Street in St James’s, Central London for its art and textile dealership. The Tenant occupied under two business tenancies, both of which enjoyed security of tenure under Part II of the Landlord and Tenant Act 1954 (“the Act”).
The majority of the rest of the building in which the unit is located is a hotel, run by The Cavendish Hotel (London) Ltd (“the Landlord”).
Upon the expiry of the fixed term of the tenancies, the Tenant sought new tenancies under the Act in the usual way. The Landlord sought to resist the grant of a new tenancy and relied on s.30(1)(F) (“Ground F”) of the Act. Ground F entitles a Landlord to refuse to grant a new tenancy and to take back possession of a Property at the expiry of the fixed term of a tenancy provided:-
“that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding 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.”
In order to satisfy Ground F, the landlord must demonstrate, on the facts, a settled and firm intention to carry out the relevant works, and must demonstrate that the works are sufficient in scale that they could not be carried out whilst the tenant is still in situ and could not be carried out via any rights of access under an existing tenancy. In this case, the Landlord demonstrated the requisite intention but admitted that the sole purpose of the proposed works was to satisfy Ground F and to enable the Landlord to reclaim possession. It was admitted that the works were of little practical or commercial benefit to the Landlord other than this.
The question which fell before the court, then, was whether Ground F is actually satisfied in these circumstances; is Ground F actually satisfied by a set of works if the Landlord’s sole intention for carrying out the works is to satisfy Ground F?
The County Court at first instance and the High Court at first appeal found in favour of the Landlord and found that the Landlord’s motive for carrying out the works are irrelevant other than being examined to determine whether or not the firm and settled intention to carry them out actually exists.
Given the significance of the issues at hand, the case skipped the Court of Appeal and went straight to the Supreme Court for its final appeal.
Lord Sumption, giving the lead judgment, held that the landlord’s intention to carry out the works cannot be conditional on the tenant’s decision to seek a renewal tenancy or not. In his own words:-
“the landlord’s intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy, so that the tenant’s right of occupation under a new lease would serve to obstruct it. The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim. The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily.”
In this case, the court found that the landlord’s intention did not exist independently of the Tenant’s claim for a new tenancy. The scheme of works was contrived to satisfy Ground F and obtain possession, it was accepted that if the tenant did not seek a new lease, the works would not be carried out. Accordingly, Ground F was not satisfied.
The rationale behind the finding seems clear: the Act seeks to protect the competing interests of the tenant and the landlord. A tenant’s right to security of tenure and a new lease is protected under s.24 and the landlord’s right to recover possession of the Property for the purposes of redevelopment is protected under s.30(1)(F). It is the nature of these interests which lay at the heart of the decision: the interest protected by Ground F is a landlord’s right to recover possession for redevelopment purposes, not a landlord’s right to recover vacant possession in and of itself. In reality, the Landlord wanted vacant possession for the sake of vacant possession and all of the commercial advantages which that can bring; the proposed scheme of works held no utility or practical benefit other than the satisfaction of Ground F.
The decision is viewed as one of the most significant in the history of the Act and the consequences for landlords are clear. It is no longer sufficient to demonstrate only a firm and settled intention to carry out large (in many cases “beefed up”) redevelopment works in order to satisfy Ground F. In order to recover possession of a property at the expiry of the fixed term of a tenancy, a landlord must also show that the proposed works will and would always have been carried out and that the works were in no way conditional on the tenant’s decision to seek a new lease. This rationale applies to the scheme of works as a whole and to individual elements of the scheme
Opposed lease renewal proceedings where a landlord opposes under Ground F are now likely to become more contracted and costly. The new conditionality test is subjective by its nature and much in future may turn on the credibility of a landlord’s testimony in relation to the proposed works. Schemes of work which appear excessive or of little practical benefit are now likely to come under much greater scrutiny than before and landlords must think very carefully before embarking on schemes where the main motivation will be to obtain vacant possession.