Terminating Business Tenancies: motive behind doing works usually irrelevant

What are the risks for landlords who oppose the renewal of a business tenancy on the basis that they want to carry out substantial works? Following a recent High Court decision, landlords need to consider their intentions behind their proposed works, or risk the tenant being able to renew their tenancy.

In S Franses Limited v The Cavendish Hotel (London) Limited [2017] EWHC 1670[1], a hotel owner was the landlord of a business tenant – a textile dealer - who rented the ground floor of a hotel in Jermyn Street, London. It had done so for some 25 years. However, it was no secret that the landlord now wanted vacant possession of the property.

The landlord served notice terminating the lease on the basis that it intended carrying out substantial renovations. This meant the business tenant could not renew the lease. However, the planned works had no actual commercial purpose. The landlord just wanted the right to oppose a lease renewal and take possession of the entire building. In cross-examination, counsel for the hotel admitted that the works would not be undertaken if the tenant left voluntarily.

The tenant argued that the proposed works were effectively a sham to get it out of the property. Even on the landlord’s own evidence, much of the proposed works it was relying on to refuse the renewal of the tenancy was for that purpose alone – and had no other commercial purpose.

The court made a number of important observations: the tenant was clearly not going to leave voluntarily and was adamant that it was staying put. In fact, it was prepared to put up with almost anything in order to secure a new tenancy, and the landlord knew this and its intentions were predicated or tailored accordingly.

The landlord had decided, at the relevant date, that it was essential for its purposes to press ahead with the scheme of works - because there was no other way to secure vacant possession. It was also clear that the landlord would not carry out the works if it lost this case – it was only planning to carry out the works for the purposes of ground (f). Jay J found that “the works are an end in themselves, because they secure, or purport to secure, compliance with the law.”

Even so, the landlord was successful both at trial and on appeal. The court made clear that a landlord’s motive for carrying out proposed works is irrelevant, unless it shows that its stated intention to do the work is not genuine. In this case, if the landlord succeeded in the case it would be bound by an obligation given to the court to carry out the works.

On a further point, the tenant pointed out that the landlord would have to deal with planning and consent issues before the work could be carried out, so the works would not be carried out ‘on the termination of the current tenancy’. The court found that a 12-month time period from the date of vacant possession to carry out the works would not be reasonable. However, it did not fix what would be a reasonable time because “proper consideration needs to be given to the objective elements of the landlord's intention”.

What’s clear is that landlords cannot decide to carry out works to their property for the sole reason of gaining possession of their property, if contrary to their stated intentions. The proposed works upon which notice of termination relies on must be genuine. In addition, those works must be able to be carried out within a reasonable time in the circumstances, otherwise the tenant may have the legal right of renewal of the tenancy. Interestingly, the court noted that it had been particularly generous to the landlord in this case.

[1] S Franses Limited v The Cavendish Hotel (London) Limited [2017] EWHC 1670



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