Posted by Caroline Preist, Partner
Honesty has legally become the best policy, be wary landlords!
In a challenging decision sure to be felt throughout the real estate industry, the Supreme Court has handed down judgment on S Franses Ltd v The Cavendish Hotel (London) Ltd in favour of the Tenant, S Franses. For the reasons explained in this article, this landmark judgment effectively extends the ground (f) test for redevelopment. But is this necessarily a good thing?
A significant number of leases now contain a provision contracting out of the Landlord and Tenant Act 1954 (“the Act”). This means that tenants no longer regularly enjoy security of tenure (allows them to remain in occupation even after the lease expires). Indeed this would be the case unless a section 25 notice or a section 26 request is served. If a section 25 notice opposing a new lease is served by the landlord on the tenant then the landlord will need to cite a reason under section 30(1) of the Act. The most commonly used grounds under this section are (f) redevelopment and (g) intention to occupy. The relevant ground which was discussed in S Franses was ground (f). The test for determining whether a landlord has satisfied ground (f) is:
“that 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”.
Before S Franses, as part of this test, the landlord had to show a firm and settled intention to carry out works and a reasonable prospect of carrying out that intention. It is important to note that motive was irrelevant in deciding intention.
Put simply, the landlord in this matter, Cavendish Hotel, attempted to oppose a new lease being granted to S Franses based on ground (f). However, it was clear that the landlord’s sole aim was to get vacant possession of the property, as the plans and drawings submitted were evidently of no practical effect on the property. Indeed, the landlord himself admitted that the works were only being done so that it could have vacant possession of the property by effectively getting rid of the tenant.
In a challenging, but arguably justifiable decision, the Supreme Court ruled in favour of S Franses and held that motive is indeed relevant to the ground (f) test for redevelopment, and particularly to the intention element of this test.
Therefore when assessing intention within ground (f), one must now apply the “acid test” – will the landlord still intend to redevelop the property even if the tenant chooses to move out of the premises?
The Court’s justification for extending this test is that if a landlord’s motive is to get rid of a tenant from the property, and he uses ground (f) as a means of achieving this, then he will no longer have a “firm and settled intention” to redevelop the property. This intention becomes conditional.
This decision is a significant departure from the status quo where motive was not a consideration as part of ground (f). This meant that landlords would often tactically use ground (f) to kick their tenants out of the property, with tenants being given very little confidence to challenge the landlords on this. The equilibrium was therefore very much in the landlord’s favour. However, the introduction of the new “acid test” will undoubtedly be a welcome change to tenants, affording them more protection under the Act.
Of course tenants also now have more justification to challenge a landlord’s intention to redevelop the property. Yet, one must remember that motive is a subjective element; indeed a landlord could claim that it genuinely wishes to redevelop its property, and tactically ensure that its plans show this intention. The effect of this judgment therefore remains to be seen in the coming years.
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