Some commentators were worried that the Supreme Court's findings in S Franses Ltd v The Cavendish Hotel (London) Ltd  could render obsolete a landlord's ability to use ground (f) to oppose a lease renewal on the grounds of redevelopment. However, rather than killing off ground (f), the first judgment since Franses has not seen ground (f) derailed.
To recap, ground (f) provides that a landlord may oppose a lease renewal if:
“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”.
It is established that to successfully oppose on ground (f), a landlord needs to show that:
- subjectively, at trial it has a fixed, settled and unconditional intention to carry out significant works
- objectively, it has reasonable prospects of being able to carry out those works.
On subjectivity, "fixed and settled" are long established hurdles. In Franses, the Supreme Court raised the subjectivity bar further, requiring landlords intending to redevelop to show not just that they had that fixed, settled intention, but that their plans were unconditional. Put simply, a landlord needs to do the works regardless of the tenant's position, quashing the ability to contrive a scheme of works (or embellish a scheme) simply to remove a tenant.
London Kendal Street No 3 Ltd v Daejan Investments Ltd – a summary
The tenant had four leases of parts of the ground floor at Park West, Marble Arch, London, held by various group companies ("IWG"). When the lease of Suite C2 was expiring, the landlord served a hostile s25 notice, relying on ground (f). IWG's business involved granting short term licences to office occupiers, and Suite C2 was pivotal, being the common area used by the occupiers of the other units. Conversely, the landlord wished to redevelop the basement and redevelop Suite C2 as the front entrance and lobby (with a lift and staircase to the basement). The landlord commenced works, but temporarily stopped because IWG had taken issue with the noise levels and general disturbance and threatened an injunction.
The tenant's case
IWG argued that the landlord had presented alternative schemes to the court. The works timetable it would deploy if IWG left voluntarily was different to that implemented in the circumstances.
Notwithstanding this, the court accepted the landlord had the subjective intention to do the work. But IWG's case rested on the argument that the landlord had no reasonable prospect of being able to carry out the works. The available hours for working were significantly limited, given the office use during the day, and residential units on the upper floors made it impossible to work outside of the usual working day. Relying on that, IWG said the landlord could not carry out the disruptive works, and, for the purposes of the 1954 Act, would be prevented from proceeding because IWG would seek an injunction to stop the works.
The court's decision
The court was comfortable that the landlord had satisfied the Franses intention tests. The judgment did not interrogate the required standards too closely, but the subjectivity ground was held to have been made out. The court was also satisfied that the landlord could fund the works, that the relevant permissions were in place, contractors had been retained and a sensible works programme prepared. In particular, damp and corrosion in the basement meant that those works needed to be undertaken as soon as possible to maintain the integrity of the building. The landlord had also given an undertaking to the court to commence the works upon vacant possession being given.
But what about the threat of an injunction? The tenant argued that regardless of the above, its injunction would prevail and prevent the landlord completing the works. However, the court felt that even if an injunction was obtained, it would not be on absolute terms, and so the landlord would be able to proceed with their works even if in a restricted manner. The court observed that the critical date for the purposes of the 1954 Act was when the works commenced, not when they completed. As a result, the landlord had a reasonable prospect of being able to carry out the works.
What does this mean for landlords and tenants?
Although the tenant was unsuccessful in this scenario, the strategy it adopted is a great reminder to think creatively when approaching this sort of litigation and engage all the tools in your arsenal (whether you are the landlord or the tenant) in order to achieve the desired result. It is also a heady reminder that whilst the court still upholds the purpose of the 1954 Act and the security it affords tenants, it is not blind to practical realism.
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