Supreme Court backs tenant in ‘remarkable’ Cavendish Hotel case

The Supreme Court has backed the tenant in what Supreme Court judge Jonathan Sumption called a “remarkable case” in which a landlord planned more than £750,000 worth of “useless” renovations just to secure vacant possession. The case, S Franses Ltd v The Cavendish Hotel, is one of the most eagerly awaited property rulings of the year and has a direct impact on the ability of landlords to refuse commercial tenants’ applications for lease renewals. It examines what intention a landlord is required to show in order to refuse a new lease on grounds of redevelopment plans, under ground (f) of section 30(1) of the Landlord and Tenant Act 1954. The case involves a dispute between the landlord, the Cavendish Hotel on Jermyn Street in London, SW1, and S Franses Ltd, which runs a gallery on the ground floor and basement of the building. In May 2015, the hotel refused to grant the gallery a new tenancy, citing the act, saying it planned “substantial work” on the building. The hotel accepts, according to the ruling, that the work was planned “regardless” of “commercial or practical utility and irrespective of the expense”, and was done with the intention of getting rid of the tenant. According to Lord Sumption, who handed down the ruling today, the work involved demolishing and then rebuilding walls in the same place, and constructing a retail space without street access. When the tenant challenged the hotel in the Central London County Court, the hotel gave an undertaking that the work would be done. That court found in favour of the hotel, as did the High Court. The case then went directly to the Supreme Court. Today, the Supreme Court reversed the decision, finding for the gallery because, in this case, the planned work was “conditional” on the tenant choosing to assert rights to the tenancy. “This appeal does not turn on the landlord’s motive or purpose, nor on an objective assessment of the reasonableness of the proposed scheme of works but on what it is that the landlord must intend if ground (f) is to apply,” Lord Sumption said in his ruling. “Ground (f) assumes that the landlord’s intention to demolish or reconstruct the premises is obstructed by the tenant’s occupation,” he added. “It follows that the landlord’s intention to carry out the works cannot be conditional on whether the tenant chooses to assert his claim to a new tenancy. The intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy. “On the facts, the tenant’s possession of the premises did not obstruct the landlord’s intended works and the landlord did not intend to carry them out if the tenant persuaded the court that the works could reasonably be carried out while he remained in possession.” Matthew Bonye, head of real estate dispute resolution at law firm Herbert Smith Freehills, commented: “The Supreme Court has rallied against any kind of conditionality within the meaning of ‘intention’. “The works will need to be carried out whether or not the tenant accepts the landlord’s argument and simply leaves.  This prevents circularity, where a landlord never has to carry out the works because in practice it knows that the tenant is likely to go rather than fight through to trial.” Giving general guidance, Lord Sumption said that landlords sometimes plan to carry out work but inflate the amount of work planned in order to satisfy the Act and get the tenant out. In such cases, judges should only consider the amount of work that the landlord “unconditionally” plans when considering whether the work satisfies the conditions of the Act. Overall, the ruling “strikes the balance” intended by the Act, according to Mishcon de Reya partner Joanna Lampert. She said: “Despite the success of the tenant in this case, [the ruling] will not operate to prevent landlords who genuinely intend to redevelop from obtaining vacant possession in order to do so.” However, Chris Sullivan of surveying firm Malcolm Hollis said the ruling could cause problems for landlords. “Except for getting a slightly higher rent, I really don’t see why anyone would grant a ’54 Act lease now,” he said. Sullivan advised the hotel in the case. He said that the “uselessness” of the planned renovations was overstated, adding: “Most of the scheme was proper and bona fide.” When seeking to gain vacant possession, landlords are now “going to have to have their ducks in a row from day one”, he said. “Proving you meet the demands of the Act is now going to become really difficult.” Helen Wheddon, partner at law firm Stevens & Bolton, agreed that the ruling may cause complications: “This is likely to make life very difficult for a landlord seeking to redevelop its property and regain possession from its protected tenants. “While the Supreme Court avoided saying that the landlord’s motivation for carrying out the works was relevant to its intention, well-advised tenants looking to ‘spoil’ a landlord’s scheme may drag out disputes by arguing that the proposed works have no practical value and/or are not commercially viable. “Genuine claims under ground (f) are unlikely to fail as a result of this decision, but it may take a lot longer and cost a lot more to get that final possession order from the Court.” To view the Supreme Court’s ruling and a summary, visit: https://www.supremecourt.uk/cases/uksc-2017-0151.html