In S Franses Limited –v- The Cavendish Hotel (London) Limited [2017] EWHC 1670 (QB) the High Court held that a landlord is entitled to refuse the grant of a new tenancy to a protected business tenant on redevelopment grounds even in circumstances where the scheme of development is devised solely for the purpose of evicting the tenant and confers no other benefit on the landlord.
The premises in question were demised to the tenant under two separate leases and comprised part of the ground floor and basement of the Cavendish Hotel, Jermyn Street, London. The tenant operated a textiles dealership and consultancy from the premises. The landlord was the owner of the Cavendish Hotel.
By way of a counter-notice served in early 2015, the landlord opposed the tenant's request for a new tenancy of the premises under section 30(1)(f) of the Landlord and Tenant Act 1954, on the basis that it intended to redevelop the premises.
Notwithstanding the landlord's opposition, the tenant, who had occupied the premises for over 25 years, subsequently issued proceedings seeking the grant of a new tenancy in July 2015, culminating in a final hearing in February 2017. At that hearing, the judge found in the landlord's favour and refused the tenant's request for a new tenancy. The tenant appealed to the High Court on nine separate grounds, of which only two were upheld by the Court.
The tenant raised various arguments both originally and on appeal, however, the key questions before the Court on appeal related to: 1) the genuineness of the landlord's intention to execute its stated programme of works 2) the "conditionality" of the landlord's intention and 3) the extent to which the landlord could execute its intended scheme with the tenant in situ.
It was common ground that the landlord's redevelopment plans had changed significantly over time and that up to five separate schemes had been contemplated. Planning permission had not been granted for any of the schemes.
The scheme the landlord ultimately opted for was known as "Scheme 3". Scheme 3 was only finalised on the final day of the first trial following consultation between the landlord and its lawyers. The landlord did not require planning permission to implement the works but would have required permission to put the reconfigured premises to any practical use.
The tenant argued that the landlord did not have the requisite intention to redevelop the premises in circumstances where it only intended to do so in order to regain possession of the premises. On that basis, the tenant said, the landlord's intention was conditional upon the termination of the tenancy and not "firm and settled" as it needed to be.
The Court rejected this argument; making clear that motive in such cases is irrelevant. The landlord had provided an undertaking to the Court to carry out the works (at a cost of over £700,000) within 12 months of the termination of the tenancy and this, together with the landlord's factual evidence, was sufficient to meet the relevant test.
The tenant also argued that the landlord could carry out the majority of the planned works pursuant to its existing rights under the lease and that the lease could be varied to allow additional rights if necessary. Although the Court acknowledged that the tenant was willing to withstand almost any interference from the landlord as a result of the works in order to remain in occupation, it held that if the landlord were to act in this manner it would render the premises substantially unfit for the purposes for which they were let, putting the landlord in breach of its implied covenant not to derogate from grant.
Although the principles arising out of this case are not necessarily new, the Court acknowledged that "in no other case has a court been so generous to a landlord as the judge has been in the present case". The decision will therefore be worrying news for tenants in prime properties who find themselves increasingly under threat from landlords looking to maximise investment value. For Landlords seeking to develop or regain possession of let premises, this decision provides some reassurance that protected tenancies may not be so secure after all.