Landmark Supreme Court ruling concerning a landlord’s ability to resist on the grounds of an intention to redevelop a business tenant’s claim for a lease renewal

The Supreme Court has recently made an important decision relevant to both landlords and tenants of commercial premises. The background to the case was discussed in our previous article here. In brief, the landlord put together an artificial scheme of works specifically to show an intention to redevelop that would defeat the tenant’s claim to a lease renewal, which was allowed by the High Court.

However, the Supreme Court has reversed this decision, ruling that the landlord’s intention must not be conditional on whether the tenant chooses to pursue a new lease.  The test is whether the landlord would propose carrying out the same works if the tenant instead decided to leave the property.  In this case, the contrived scheme of works that would only be carried out if the tenant remained in situ did not show the required level of intention.  As a result, the tenant was granted the new lease that it so desperately wanted.

The Court emphasised that the landlord’s motive is not directly relevant, but is evidence of whether the landlord has the necessary genuine, fixed and settled intention to carry out the works.  The key factor is the nature, quality and unconditionally of a landlord’s intention, and not the motive behind or the reasonableness of it proposals.

A less extreme example would be where the landlord intends to undertake some works, but exaggerates their scope to oust the tenant, resulting in a mixture of conditional and non-conditional intention. In such a case, only the works that the landlord intended unconditionally to carry out could be relied upon as evidence of an intention to redevelop.

If the Supreme Court had come to an opposite conclusion, landlords wanting to take back possession of properties could simply give their tenants a schedule of works substantial and disruptive enough to require their leaving the property. Tenants would have no incentive to apply to court, and would instead most likely admit defeat and leave, depriving them of the protection the original legislation was designed to provide.

Arguably, however, the majority of commercial tenants are already being deprived of this protection before leases are ever being entered in to, due to the number of landlords insisting nowadays that leases are contracted out of the automatic right of renewal for business tenants. Indeed, the practical consequence of this case may be that even more landlords insist on contracted out tenancies, to ensure that they can easily take back possession at the end of a lease.  However, for those landlords and tenants that have entered into leases with this protection, or are considering doing so, the case is one to pay attention to.

Other likely consequences are that tenants whose renewals are being opposed on the basis of an intention by the landlord to redevelop will now be pushing for full disclosure of their landlord’s development plans. Any evidence that, but for the tenant, the development would be carried out in another way, may help the tenant overcome the opposition and be granted a new lease.

We may also now see landlords looking more towards the other statutory grounds to resist a tenant’s lease renewal claim, such as an intention to occupy the premises for its own business.

As a result of this landmark decision, it seems that the days of landlords fabricating extensive schemes of work solely to defeat a tenant’s lease renewal right are over, and the case is ultimately very good news for tenants.

Fenella Eddell is a solicitor in the property department at Barker Gotelee, Suffolk solicitors.

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