You may recall from our insight last year, that the High Court had determined that it did not matter that the only reason a landlord is carrying out a redevelopment is to get rid of the tenant for the purposes of opposing a business lease renewal.  (Please click here for our previous insight)

The question was leapfrogged to the Supreme Court who handed down Judgment in S Franses Limited v. The Cavendish Hotel (London) Ltd on 5 December 2018.

Facts

By way of reminder, the tenant, S Frances Limited occupies 80 Jermyn Street as a retail art gallery, show room and archive for materials relating to its business.

The landlord devised a package of works, aspects of which had been contrived only to satisfy the redevelopment ground of opposition (ground (f)) and to obtain vacant possession of the premises.  The landlord admitted in evidence that the sole purpose of the works was to obtain vacant possession as the works were of no commercial or practical value to the landlord.

The High Court (on appeal) decided that the landlord’s motive for carrying out the works was irrelevant and that the landlord had established its ground of opposition.

The Supreme Court decision from 5 December 2018

The Supreme Court unanimously disagreed and introduced a new “acid test” so that a landlord must be able to show that its intention to carry out the works is not conditional on whether the tenant chooses to assert its right to a new tenancy and pursue that claim.  For example, the landlord must establish that it intends to carry out the works even if the tenant vacates.

In Franses, the landlord only intended to do the works because it was a way of obtaining vacant possession.  It would not have carried out the works if the tenant agreed to leave voluntarily or if the landlord could exercise a right of re-entry without obtaining vacant possession.  Therefore, in the Supreme Court’s view, a conditional intention such as this, was not a fixed and settled intention required by ground (f).

The Court commented that the facts of this case were extreme.  The more common situation is where a landlord genuinely intends to carry out redevelopment works but “beefs” up the scope of those works to ensure it obtains possession by making them more substantial and intrusive.  In those circumstances, the Court stated that if it was found that the landlord would not carry out the additional works if the tenant left voluntarily then only the “unconditionally intended” works should be considered by the Court in considering whether ground (f) is made out.

Conclusion

The introduction of an additional “acid test” is likely to create uncertainty for landlords who already have several hurdles to overcome in successfully establishing their case under ground (f).  As a result opposed lease renewals under ground (f) may become more complex, lengthy and expensive where tenants seek to challenge what might be perceived to be unnecessary additional works and the Court undertakes a “forensic examination” of the landlord’s intention.

This article was written by Georgina Redsell. Please do not hesitate to contact Georgina on georgina.redsell@crsblaw.com or 020 7203 8897 or another member of the property litigation team for specific advice.  This insight is not a substitute for legal advice on the specific circumstances of a case.