Sainsbury's Supermarkets Ltd v Medley Assets Ltd [2024]
Sainsbury's has successfully defeated its landlord's opposition to a new tenancy on s.30(1)(f) 1954 Act 'redevelopment' grounds by tactically retreating into a part of the holding which would be unaffected by the development works just one week before the trial.
The case deals with an important novel point of law regarding the extent of 'the holding' in the context of opposed lease renewals and considers the quality of expert evidence required for a landlord to establish a genuine 'firm and settled' intention to carry out the works.
The facts
Sainsbury's has a protected lease of the whole of a building on Kentish Town Road in London and operates a local supermarket store on the ground floor. Importantly, the demised premises in Sainsburys' lease included a basement it no longer uses, and three upper floors it previously used as offices which were all vacant, so that it only occupied the ground floor.
Medley Assets, Sainsbury's landlord, served a section 25 notice under the 1954 Act to terminate Sainsburys' tenancy on section 30(1)(f) redevelopment grounds which states: "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."
The landlord had originally obtained planning permission to convert the upper floors into residential flats. By the time of the trial however, it aborted this plan and subsequently revised its proposal to instead lower the basement floor (which it had obtained separate planning permission for), refurbish the upper floors to offices (which didn't require planning permission) and carry out alterations to widen the staircase from the ground floor to the upper floors.
Sainsbury's issued lease renewal proceedings for a new tenancy in July 2021. A week before the preliminary trial in January 2024, where the county court would test the landlord's ground (f) opposition as a preliminary issue, Sainsbury's strategically vacated the c.26m² area of the ground floor it previously used for stock storage that would have been affected by the landlord's proposed works. It continued occupying the remainder of the ground floor (which would be unaffected by the works) so that this small area no longer formed part of the 'holding'. In doing so, it deprived the landlord from arguing the works were to the 'holding' and as such from satisfying ground (f).
The meaning of 'holding'
To successfully oppose on ground(f) of the 1954 Act, the landlord must demonstrate an intention to carry out works to 'the holding' which must not be feasible without obtaining vacant possession. The 'holding' is defined as any part of the demised premises which is actually occupied by the tenant for the purpose of carrying out its business.
The landlord here sought to rely on section 32(2) of the 1954 Act which allows landlords to insist that, on renewal, a tenant takes a new tenancy of the whole of the premises. Where this applies, the 'holding' is then construed to mean the whole of the original premises. It argued the 'holding' should be construed as the whole premises for ground (f) so that the works to the otherwise unaffected and unoccupied parts of the demise fell within ground (f).
Sainsbury's argued that section 32(2) would only be relevant at the second hearing when it came to determine the terms of the new tenancy, which includes the extent of the demise under the new tenancy. It argued that the wording of section 32(2) clearly did not apply to section 30 and the definition of holding in section 23(3) applies such that the 'holding' meant those parts of the demise it was occupying at the time of preliminary trial of the ground (f) opposition.
The court agreed with Sainsbury's and held that when assessing a landlord's ground of opposition what constitutes the physical extent of the 'holding' for these purposes is the part occupied as at the date of preliminary trial as defined by section 23(3). As such, the works to the unoccupied c.26m² area on the ground floor and basement did not fall within the scope of ground(f) and the landlord's claim was defeated.
Landlord's intention
The court went on to consider whether ground (f) would have been satisfied if Sainsbury's were occupying the whole demise. Despite the landlord spending over £200,000 towards preparatory works and obtaining planning permission, the judge found Medley Assets lacked a "genuine and settled intention" to carry out the proposed redevelopment works, and he was not persuaded the landlord would have carried out the works if the tenant had left voluntarily.
On the factual evidence, the court found the scheme to be "aspirational" since there were significant issues with the scheme which made it "unrealistic". This included access issues for materials and machinery and compliance issues with fire safety regulations. It found that most of the money spent related to the upper floors conversion which had been abandoned and the landlord had done little to advance the development despite having funds in place. The court also found the works to the basement could be carried out whilst the tenant was in occupation.
Undertaking
It is common for a landlord to provide an undertaking to the court to carry out the works to establish its intention. Here, the landlord failed to offer an undertaking until after the landlord's experts had been cross-examined on the issue, and the judge considered the landlord to be "evasive and disingenuous" such that an undertaking would not have been genuine or certain enough to be enforceable.
Expert evidence
The final nail in the coffin for the landlord though was the quality of his expert's evidence. The judge found the landlord's building surveyor "unreliable" as an expert and "unaware of his duties to the court". His report was laden with errors (84 misspelled words amongst other errors), which he blamed on his secretary and refused to take accountability for. The judge could not place reliance on his evidence and instead favoured the tenant's expert whose opinion was that the works were not viable and if they were, they could be carried out whilst the tenant remained in occupation. On scrutiny of the contemporaneous documents offered as evidence, the court was not satisfied that the scheme was viable or necessary but instead conceived for the purposes of opposing a new tenancy following service of the section 25 notice.
Implications
The case shows that it is possible for a tenant to vacate part of the premises before trial to defeat a landlord's ground (f) opposition and subsequently occupy the remaining premises to renew a lease for the whole premises once the preliminary ground (f) issue has been decided.
The decision also highlights the importance of quality expert evidence to establish a landlord's firm and settled intention to carry out redevelopment works. It reiterates that experts must strictly adhere to their duties to the court including compliance with the Civil Procedure Rules and they are solely responsible for ensuring their reports are accurate.
The decision is not binding as it is a County Court judgment and may be subject to appeal. A copy of the judgment is available here.
Mishcon's leading Property Litigation team regularly advises on ground (f) redevelopment cases for landlords and tenants alike. Get in touch if you would like more information.