Most commercial lettings are for a fixed period of time, but many business tenants will be aware that they have a right of first refusal to a new lease when their old lease comes to an end, by virtue of the Landlord and Tenant Act (LTA) 1954. 

The LTA 1954 allows a tenant to ask its landlord for a new lease and, if the parties cannot agree terms, a court can order such a new lease. A landlord who does not want to grant a new lease to that tenant has a limited range of legal arguments it can use to oppose the tenant’s request. One of those arguments (known as Section 30 (1)(f) or more commonly as Ground (f)) is that the tenant should not be allowed a new lease because the landlord wants (in summary) to redevelop the leased premises, and needs full control of the property to do that.

The outcome of S’Franses Ltd v The Cavendish Hotel London [2017] EWHC 1670 QB gave the landlord considerable additional flexibility in how they sought to recover possession of the business premises.

A landlord’s intention to redevelop property

Most legal cases are about the consequences of what happened in the past. However, the scope of the LTA 1954 is such that it asks the courts to assess what might happen in the future. Specifically, in relation to Ground (f), a landlord must persuade a court that a tenant should not be granted a new lease of business premises because the landlord intends to carry out substantial works on the premises in the future, and the tenancy could not continue because of those works.

To do this, a landlord needs to get over a number of legal and practical hurdles.  Many of these have been considered at length by courts since 1954. The ‘new’ issue – which probably is in fact an old issue in a new form – is about the landlord’s ‘intention’.  Does it matter that the landlord only intends to carry out works in order to stop the tenant securing a new tenancy (i.e. if the tenant left voluntarily, the landlord would not undertake such works)?

A landlord opposing new tenancy - S’Franses Ltd v The Cavendish Hotel London [2017]

S’Franses Ltd is the tenant of a retail store just off London’s Piccadilly. It applied to the courts for a new tenancy. The landlord indicated that it would oppose the grant of a new lease, and put forward a set of development proposals to support that opposition. Some of those works were clearly designed only to make the continuation of the tenancy impossible – e.g. floors were to be lowered for no good reason and walls partially removed.

Interestingly, the landlord did not deny the purpose of the works (i.e. they were contrived), but argued that its motivation for the works was irrelevant for the purposes of establishing that it had an ‘intention’ to redevelop. Earlier cases had hinted at the same point (for example, that a landlord trying to take back possession did not have to demonstrate that it had a good commercial case for doing so), but S’Franses Ltd is probably the first case where the landlord was quite so forthright about its motivation.

Success – but what does this mean?

The landlord was successful at trial and on a first appeal. It convinced the court that its motivation was irrelevant. 

This potentially gives considerable support for landlords who are keen to remove business tenants at the end of their leases, but who do not otherwise have a coherent reason to redevelop the property. As things stand following S’Franses Ltd, a landlord can redevelop the property ‘just because’, and even reinstate the premises once they have completed the redevelopment works. Clearly there might be substantial cost implications in carrying out otherwise ‘unnecessary’ works, but there will be occasions when it is in the landlord’s interests to incur such costs.

We understand from those who acted in the S’Franses Ltd v The Cavendish Hotel London [2017] case that it is being appealed to the Court of Appeal or possibly the Supreme Court – suggesting that the issue is of great importance to the operation of the business tenancy market. It is not inconceivable that further legislation could follow, if the landlord’s argument is upheld. Those involved in the business of lease renewals under the LTA 1954 should pay close attention to what happens next. 

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