The Supreme Court has this morning handed down its eagerly anticipated judgment in the case of S Franses Limited v The Cavendish Hotel (London) Limited. And it’s a game-changer.
In a departure from long-settled practice, a landlord seeking to oppose the grant of a new tenancy on the basis of redevelopment must now demonstrate that its intention to undertake works is independent of the tenant's right to a new tenancy.
The key question landlords will therefore now have to address is: would you intend to do the same works, even if the tenant left of its own accord? The days of landlords fabricating extensive schemes of works, solely to recover possession of their properties, now appear to be over.
The case concerned lease renewal proceedings under the Landlord and Tenant Act 1954. The Act allows a landlord to oppose the grant of a new tenancy to a business tenant where it intends, on the termination of the current tenancy, to undertake works of demolition, reconstruction or construction to the premises or a substantial part of them (Ground (f)).
In this case, the tenant ran an antique textiles business on the ground floor and basement of 80 Jermyn Street. The landlord devised a scheme of exclusively internal works to the premises which would not require planning consent.
The works had no commercial benefit whatsoever, were said to be "completely useless" and their predominant purpose was to satisfy Ground (f) in order to obtain vacant possession from the tenant. They were estimated to cost £775,000.
It was admitted by the landlord in cross examination that the works would not be carried out if the tenant vacated the premises voluntarily. The landlord did, however, give an undertaking to the Court that the works would be carried out if a termination order was granted.
The High Court (on appeal from the County Court) found for the landlord and held that it did have a firm and settled intention to do the works, even if it only intended to carry them out in order to satisfy Ground (f). The fact that the works were devised to meet the statutory test was held to be irrelevant, as was any examination of the landlord's motives.
The tenant appealed the High Court's judgment and was given a "leapfrog" certificate straight to the Supreme Court. The questions before the Supreme Court were:
- If a landlord intends to carry out works if and only if those works are necessary to satisfy Ground (f), does that landlord have the requisite intention for the purposes of Ground (f)?
- If a landlord's main commercial objective for doing the works is to fulfil Ground (f) and avoid the grant of a new lease to the tenant, does that landlord have the requisite intention for the purposes of Ground (f)?
In each case, it is assumed that the landlord (as in this case) has given the Court a formal undertaking to do the works if a termination order is granted.
The Supreme Court's judgment
On point (1), the Supreme Court ruled unanimously in favour of the tenant. A conditional intention to carry out works, contingent on whether the tenant will exercise its right to renew, is not the type of fixed and settled intention required by Ground (f). If, therefore, a landlord would not carry out the works if the tenant were to vacate the premises voluntarily, then the requirements of Ground (f) will not be satisfied.
The Court did not express a final view on point (2), given its finding on point (1). But the Court indicated that if it had found that the landlord's apparent intention should be disregarded for want of any commercial purpose, then this would have been a radical departure from established authority on the Act. We can take this as a hint that the Court was more sympathetic to the landlord's arguments on this second point.
The facts of this case were extreme. The entire value of the works proposed by the landlord consisted of removing the tenant. There was no benefit whatsoever to be derived from the proposed works themselves.
The Court acknowledged that matters will be less straightforward where a landlord proposes to do some works whether or not the tenant would voluntarily vacate, and other works only for the purpose of satisfying Ground (f). In such a case, the Court suggested that one should normally have regard only to those works that the landlord unconditionally intended to carry out, and the spurious top-up works should be disregarded.