Is it harder for tenants to extend their commercial leases?
A recent court case decided that the court will not consider the landlord’s motive for redevelopment but only their intention when deciding whether a landlord can successfully oppose an extension of a new lease.
Certain tenancies allow tenants the right to renew their lease. Landlords can however, provided they can establish one of several specified grounds oppose the renewal of a tenancy. One of the more common grounds is:
“…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 that he could not reasonably do so without obtaining possession of the holding.”
If the landlord can establish this then they can oppose the renewal of a lease and re-take possession but if successful they do need to compensate the tenant for failure to renew. The onus is on the landlord to prove to the court that it has the requisite intention, to do this it will need to provide evidence to show:
- The extent of the works which they intend to carry out;
- The landlord’s intention to carry out these works;
- Whether there is a reasonable prospect of them actually carrying out these works
The case concerned a textile dealership and consultancy based in the ground floor and basement of a luxury hotel. The tenant sought to renew their lease and the landlord opposed stating that it was their intention to redevelop. The matter went to the Central London County Court.
During the court proceedings the landlord’s scope of works presented as evidence that the landlord intended to carry out a redevelopment changed and it became clear that the landlord had devised the scheme of works solely to obtain possession of the property and it was argued that the works had no practical or economic value.
Initially the court said this did not matter, they were satisfied that the landlord had made out their ground of opposition as they had a firm, settled and unconditional intention to carry out the redevelopment works and would do so within a reasonable time, which they concluded was 12 months from obtaining vacant possession.
The tenant successfully appealed the decision but on different grounds. Why this case is important however was not the success of the appeal or ultimately the outcome of the case, it is the judge’s response to the tenant’s argument that the landlord’s intention to carry out the works had not properly been made out.
At the appeal the tenant argued that Parliament could not have intended the law to be used to allow wealthy landlords to devise redevelopment schemes for the sole purpose of obtaining possession. The court disagreed and said the court is only interested in whether the landlord can establish that they intended to carry out the works and its motives for carrying out those works was irrelevant.
This case shows us that a well advised, wealthy and determined landlord can successfully refuse a tenant’s extension of a commercial lease by devising a scheme to obtain possession of a property even if the scheme is not practical or has no economic value.
In reality it would be very expensive for a landlord to devise such a scheme and they would still need to prove to the court that they intended to carry out the works. Many are however of the view that thanks to this case it has now become a little bit more difficult for tenants to extend their leases.
If you wish to discuss any issues relating to a lease renewal or redevelopment, then please contact Michelle Footer in our property litigation team on 020 7288 4782 or by e-mail at MichelleFooter@boltburdon.co.uk.
You can also contact one of our other solicitors in the Property Disputes team here.