Back to Basics: Lease renewals and redevelopment

This article follows a recent case in which the author was instructed in an opposed lease renewal matter, where the landlord took the relatively unusual step of making a summary judgment application in circumstances where the (claimant) tenant had issued proceedings for a new business tenancy and the landlord was opposing the grant of a new lease on redevelopment grounds under section 30(1)(f) of the Landlord and Tenant Act 1954. The landlord had obtained planning permission for its proposed works and, on its evidence, had plenty of funds to carry out its development. On this basis, the landlord thought that, rather than jump through the time-consuming and expensive hoops associated with taking the matter to a fully contested trial, it would make an application for summary judgment. By way of a reminder, an application for summary judgment is essentially an application to the court at an early stage in a set of proceedings whereby the party making the application considers, in very simple terms, that the case can be disposed of without a trial, normally in the belief that the other party’s case is hopeless or lacks any real merit. In this instance, the landlord’s position was that, because it had its planning and funds in place, the tenant had no reasonable prospect of succeeding in a claim for a new tenancy, such that the court should find in favour of the landlord at an early stage. While the application was ultimately unsuccessful, it served as a useful reminder of the factors that the court would look at when coming to assess a contested lease renewal where the landlord is opposing the grant of a new lease on redevelopment grounds under ground (f) – particularly in view of the Supreme Court’s findings in S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62; [2018] EGLR 4. Ground (f) – the legal principles In order to succeed in opposing the grant of a new tenancy in reliance on ground (f), a landlord must establish: “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.” On the question of intention under ground (f), the following principles apply: (1) There are two elements to the question of the landlord’s intention: (i) The subjective element: the landlord must have “a firm and settled intention” to carry out the works in question. The landlord will, in order to demonstrate that intention, ordinarily provide an undertaking to the court to carry out the works; and (ii) The objective element: the landlord must have a “reasonable prospect” of being able to carry out the works. (2) The landlord must intend to carry out the works “on the termination of the current tenancy”. The landlord must therefore (subjectively) intend and (objectively) stand a reasonable prospect of being able to carry out the works on termination, which is three months and 21 days after the date of the final court hearing. That is because the tenancy will continue for three months after the tenant’s application for a new tenancy is “finally disposed of” (section 64 of the 1954 Act). The “final disposal” of the application is the expiry of any period to appeal the order made by the court, such that ordinarily the tenancy will come to an end three months and 21 days after the trial, 21 days being the period within which any appeal must be made. The impact of Franses The Supreme Court’s decision in Franses has fundamentally changed the landscape of ground (f) proceedings, however. Following this decision, it is no longer sufficient for the landlord to show that it intends (subjectively and objectively) to do the relevant works. The landlord must now also demonstrate to the court that it would still have undertaken the works even if the current tenant chose to leave the premises of its own accord, rather than making an application for a new tenancy. In Franses, the landlord opposed the grant of a new lease to a tenant on redevelopment grounds. However, the landlord designed a wholly artificial scheme of works which had no real commercial purpose or practical utility other than to satisfy ground (f) and therefore to obtain possession of the premises. The landlord had openly acknowledged that it only intended to carry out the works if the tenant did not vacate the premises voluntarily. Prior to Franses, a landlord’s motive for undertaking any redevelopment works had not been considered relevant, but the Supreme Court overturned the earlier decisions of the lower courts (both in the County Court and on appeal to the High Court, it had been found that the landlord’s motives for undertaking the works were irrelevant) and ruled that the landlord’s intention to do the works cannot be conditional on the tenant asserting its right to a new tenancy under the 1954 Act. If the landlord would not have done the works if the tenant chose to leave the premises voluntarily, its intention is “conditional” and it does not then satisfy ground (f). The Supreme Court’s decision applies not only to the works themselves, but also to the timing of their execution. If the landlord (unconditionally) intends to carry out a particular programme of works, but chooses to do them earlier than it would otherwise have done in order to be able to remove a tenant under ground (f), then that too would offend the principles set down in Franses. Accordingly, in view of the Supreme Court’s findings in Franses, the following additional points are relevant to any claim under ground (f): Cross-examination of the landlord’s witnesses about the landlord’s motive or purpose in doing the works and about the commercial utility/financial viability of the works is now an entirely legitimate strategy for a tenant, because such cross-examination may go some way to revealing whether the landlord’s intention is conditional or not. A landlord is now required to undertake an even more thorough and onerous documentary disclosure exercise, because the tenant is entitled to know how the landlord’s redevelopment plans have evolved over time, with a view to establishing whether or not the landlord’s decision to do the works is conditional. Documents such as internal communications within the landlord’s own organisation and with third parties relating to the landlord’s motives behind the works are now relevant and disclosable. Expert evidence can now be sought on the question of the commercial utility and financial viability of the landlord’s proposed works because, if the works don’t make sound economic sense, it is possible that the landlord is undertaking them solely in order to remove a tenant. In order to satisfy ground (f), therefore, a landlord now needs to adduce evidence addressing all of these points (and also deal with a tenant scrutinising that evidence, cross-examining the landlord’s witnesses and also potentially bringing forward expert evidence to the effect that the landlord’s proposed works are commercially unviable). For example, in addition to the usual material such as its planning consent and proof of funding, a landlord will need to deal with matters such as: witness evidence from a decision-maker within the landlord company about the company’s decisions and the proposed works; board minutes documenting its intention; plans and drawings for the development, including costing information and tender documents; consents from third parties and any rights to light issues that may impact the development; a building contract and letters of instruction to the contractors; vacant possession of any other part of the development site; a business plan for the use/utility of the development; and evidence in relation to the satisfaction of any planning conditions. Overall, the burden for a landlord in the post-Franses landscape is higher than it was before. In particular, given that it is likely that any well-advised tenant will seek to cross-examine the landlord’s witnesses on the landlord’s motives for any works (and such cross-examination can only take place at trial), it seems that it will be significantly more difficult for a landlord to seek summary judgment on ground (f) claims following Franses. Andrew Rogers is a partner at Brabners Image © Shutterstock