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Case law: Ruling highlights pitfalls for landlords opposing renewal of business tenancy so they can carry out substantial works

Landlords proposing to oppose a business tenant’s renewal of their lease because they intend to do substantial works on the premises, should ensure their motive for doing the work does not contradict their claim that they genuinely intend to carry out the works; that they do not count works they could do under a power of entry when considering whether their intended works are substantial; and that they will carry out the works within a reasonable period after termination rather than much later - or risk the tenant being entitled to renew.

September 2017

This update was published in Legal Alert - September 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Please note: A newer article on this case was published in the January 2019 edition of Legal Alert following subsequent developments in the legal process.

A business tenant has a legal right to renew its lease if it is terminated unless the landlord can show grounds why it cannot. One of those grounds is where the landlord can show it intends to do substantial work to the premises ‘on the termination of the current tenancy’, and needs possession of the premises to do so.

The owner of hotel premises in London let the ground floor to a business tenant. The landlord served notice on the tenant terminating the lease. It said that it intended to do substantial work on the premises, so the tenant could not renew the lease.

The proposed works had no commercial purpose – they were merely to give the landlord the right to oppose renewal of the lease, and to take back possession of the whole building.

The tenant’s arguments included:

  • The proposed works were a sham. The landlord would not do them if the tenant remained in situ - and the purpose behind them was simply to recover possession of the building
  • Works that the landlord could do using its usual powers of entry under the lease, without the tenant having to leave, should not count when deciding whether the proposed works were ‘substantial’
  • The landlord would have to deal with planning and consent issues before the work could be carried out. This meant it would not be carried out ‘on the termination of the current tenancy’, as required if the landlord was to recover possession

The High Court reiterated the usual rule that a landlord’s motive for carrying out proposed works is irrelevant, unless the motive shows that its stated intention to do the work is not genuine. In this case, the landlord had given a legally binding obligation that it would carry out the work if it recovered possession of the building.

The Court did agree with the tenant that works which the landlord could have done by exercising its right of entry to do works under the lease should not count when determining whether the proposed works were ‘substantial’. Only the balance of the works was relevant. Whether this meant the proposed works in this case were not in fact substantial was left to be determined.

The Court also ruled that work for these purposes should be carried out within a ‘reasonable period’ after the termination, rather than started on the same day. In this case, the need to deal with planning and consent issues could take 12 months, and this was not a ‘reasonable period’ because the landlord could have dealt with these issues previously.

Operative date

  • Now

Recommendation

  • Landlords proposing to oppose a business tenant’s renewal of their lease on grounds they intend to do substantial works on the premises should ensure their motive for doing the work does not contradict their claim that they genuinely intend to carry out the works; that they do not count works they could do under a power of entry when considering whether their intended works are substantial; and that they will carry out the work within a reasonable period after termination rather than much later - or risk the tenant being entitled to renew

Case ref: S Franses Limited v The Cavendish Hotel (London) Limited [2017] EWHC 1670

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.