Why McDonald’s isn’t lovin’ it

Louise Clark explains why the McDonald’s chain was so aggrieved over the termination of a London tenancy that it sued successfully for compensation. Key points The landlord’s intention under ground (g) must genuinely exist at trial although it can subsequently change Presenting evidence with no real intention of following through constitutes misrepresentation In McDonald’s Restaurants Ltd v Shirayama Shokusan Company [2024] EWHC 1133 (Ch); [2024] PLSCS 91, a rare application under section 37A of the Landlord and Tenant Act 1954, the High Court has ordered a landlord to pay compensation to a tenant because the order terminating the tenancy was obtained by misrepresentation. Background McDonald’s was the former tenant of ground floor and basement premises within the Riverside Building at County Hall, SE1, an important strategic location for the company. Its lease, granted in December 1997 for a term of 20 years, was protected by the 1954 Act. Shirayama, the defendant landlord, succeeded in its application for possession of the holding under section 29(2) of the 1954 Act, relying on section 30(1)(g) and an assertion that on termination of the tenancy it intended to refurbish the holding as Zen Bento Box, a business to be carried on by its wholly owned subsidiary, Aji (Restaurants) Ltd. It undertook to the court to occupy the premises for that purpose. The McDonald’s tenancy came to an end in March 2019. Following the installation of a kitchen, some electrical installation work and redecoration, the ground floor of the premises opened for business in March 2020 as the Aji Restaurant serving Japanese food. However, because of lockdown restrictions, initially it served only takeaway food. Dine-in food commenced at the end of July 2020 on both floors although, due to continuing lockdown restrictions, the basement premises were closed between September 2020 and February 2021. In February 2021, a bakery and coffee shop was opened in the basement, although the restaurant continued to make some shared use of it. McDonald’s claimed the termination order was secured by deliberate and/or reckless misrepresentation of the defendant’s intentions for the premises. The law To establish ground (g), Shirayama had to prove both a fixed and settled desire to occupy the holding for the purposes or partly for the purposes of its business and a reasonable prospect of being able to bring about that result. The holding comprised the entirety of the premises let to McDonald’s. Intention has to be proved at the date of the trial but can change thereafter, so the court must ensure that it genuinely exists when it needs to be proved. Section 37A provides that where the court makes an order to terminate a current tenancy and either does not make an order for the grant of a new tenancy or refuses to do so and it subsequently appears that the order was obtained by misrepresentation or the concealment of material facts, it may order the landlord to pay the tenant sufficient compensation for the damage or loss sustained as the result of the order or refusal. The trial The principal witness for Shirayama at both trials was Masakuzu Okamoto, the defendant’s European managing director as well as its controlling mind and decision-maker. The judge commented on the paucity of documentation in support of the defendant’s intention, but was satisfied Okamoto acted on the basis of trust and face-to-face meetings, rather than generating e-mail correspondence. While Okamoto regarded McDonald’s as “junk food”, he genuinely wanted to make the premises a Japanese destination and to develop quick, hot quality food there. The judge was satisfied that both a firm decision had been made by Okamoto to occupy the holding for the purposes of a business conducted by Shirayama and that it had a reasonable prospect of bringing it about. In reaching his decision he relied on: a board minute of November 2016; that Okamoto companies had run food outlets at County Hall before; that a detailed business plan was produced in 2017 which included visualisation sketches of both floors and the proposed executive team, including architects; and that a quotation and programme for refurbishment of the premises had been received from Shirayama’s preferred contractor. The offer of an undertaking reinforced Shirayama’s intention. The section 37A application The principal issues depended on the judge’s assessment of Okamoto’s evidence. He found that the certainty and precision of Shirayama’s evidence at trial that it intended to occupy the premises for the purposes of operating Zen Bento was undermined by e-mails from Okamoto within hours of the judgment in November 2018. Rather than referring to implementation of the business plan, Okamoto referred to a “grab-and-go” restaurant with little or no resemblance to Zen Bento. The judge concluded Okamoto considered himself free to develop whatever kind of restaurant he wished without regard to the undertaking provided to the court. This was borne out by e-mails between November 2018 and February 2019, which contained a variety of proposals for the premises but no reference to Zen Bento and the disappearance of the contractors, architects and executive team who featured in the business plan. Okamoto did not want McDonald’s operating from the building. Shirayama had pursued its application to take back the space from McDonald’s so Okamoto could then decide what to do with it. He deliberately presented the evidence of the operation of Zen Bento, knowing it to be false, in order to obtain the termination order, while intending to and keeping the defendant’s options open. The termination order was obtained by misrepresentation. McDonald’s claim for compensation will be determined separately. Louise Clark is a property law consultant and mediator Image © Seth Perlman/AP/Shutterstock