Landlords are entitled to oppose the grant of new business tenancies where “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 cannot reasonably do so without obtaining possession of the holding: section 30(1)(f) Landlord and Tenant Act 1954.
It has long been established that landlords who intend to sell their properties cannot take advantage of ground (f), even if the purchaser intends to demolish or reconstruct the premises. But landlords are allowed to employ contractors to do the work for them. And Gilmour Caterers Ltd v St Bartholomew’s Hospital Governors [1956] 1 QB 387 confirmed that landlords who grant building leases can also satisfy ground (f).
Santander UK plc v LPC Estates Ltd [2018] EWHC 2193 (Ch) concerned the use of building leases in the light of a forthcoming challenge to the High Court decision in S Franses Ltd v The Cavendish Hotel (London) Ltd [2017] EWHC 1670 (QB); [2017] PLSCS 145. In that case, the High Court ruled that a landlord was entitled to invoke ground (f) even though it had worked up a scheme for redevelopment whose only commercial purpose was to satisfy section 30(1)(f) so that it could regain possession of its premises. The Supreme Court has agreed to hear a leapfrog appeal from that decision in October this year and will then decide whether a landlord can establish the requisite intention if its sole objective is to take advantage of the statutory provision.
The question that the tenant posed in Santander was whether a landlord can establish the requisite intention if it grants a building lease in order to satisfy section 30(1)(f). The tenant hoped that the Supreme Court decision in Franses would assist its case and sought to defer trial until the Supreme Court judgment becomes available.
The tenant argued that the creation of the building lease was a contrivance to make it appear that the works were the landlord’s. But two Court of Appeal decisions stood in its way. In PF Ahern and Sons Ltd v Hunt [1988] 1 EGLR 74 the landlord had initially considered selling its property to someone who would develop the land. But, in order to obtain vacant possession from a tenant, it granted a building lease instead. And, in Spook Erection Ltd v British Railways Board [1988] 1 EGLR 76, the landlord had also entered into an agreement for a building lease in order to satisfy ground (f). Both landlords had used the vehicle of a building lease to avoid difficulties caused by the wording in section 30(1)(f) – and both had achieved their aim.
The judge did not believe that this case fell outside the rationale behind those decisions, or that an attempt to overturn Ahern and Spook would succeed. He considered that there was a fundamental difference between use of a building lease to enhance the capital and rental value of property and building work whose only commercial purpose is to satisfy ground (f) – and ruled that the decision in Franses would not affect the outcome in Santander because Franses raises a substantially different point.
Allyson Colby, property law consultant
