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Lawbite: Just a soul whose intentions are good … but conditional?

  • United Kingdom
  • Litigation and dispute management

05-12-2018

S Franses Limited (Appellant) v The Cavendish Hotel (London) Limited (Respondent) [2018] UKSC 62

The Supreme Court has issued its decision on a much awaited case involving a landlord’s  Scheme of works deliberately devised to prevent the grant of a new tenancy under the Landlord & Tenant Act 1954 (“the Act”).

The Act automatically entitles business tenants to renew their leases when their current tenancy comes to an end. Landlords are only entitled to object on certain specified statutory grounds. One commonly used is Ground 30(1)(f) of the Act (often referred to as “the redevelopment ground” or “ground f”) which requires the landlord to show that it intends to demolish or reconstruct the premises being let at the end of the tenancy.

In this case the landlord (Cavendish) had deliberately devised a scheme of works for the sole purpose of establishing reliance on the redevelopment ground.  The scheme cost c.£700,000, had no commercial or practical utility, made little financial sense and would render the premises previously let to the tenant (Franses) unusable without planning permission for change of use. Cavendish openly admitted that it only intended to carry out the works if the Court ruled in its favour. Franses’s argument (amongst others) was that Cavendish was utilising the Act to subvert the protection afforded to business tenants.

The High Court (on appeal from the County Court) had held that such a scheme was valid as Cavendish had satisfied the requirement to show a “firm, settled and unconditional” intention to carry out the works.  The Court reaffirmed that the landlord’s motives for the works are irrelevant and no new tenancy was granted. However, Franses appealed again and, given the significance of the issue, was granted a certificate for a “so called leapfrog” appeal to the Supreme Court, bypassing the Court of Appeal.

Franses appealed on 8 grounds and the Court decided that the appeal should proceed on two of those grounds which  turned on the issue of whether the landlord has sufficient intention where:

  1. it intends to carry out works if, and only if, those works are necessary to satisfy s 30(1)(f), and which offers an undertaking to carry out those works in the form of the undertaking given by the landlord,
  2. its sole or predominant commercial objective is to undertake works in order to fulfil ground (f) and thereby avoid the grant of a new lease to the tenant, and which offers an undertaking to carry out those works in the form of the undertaking given.

Overturning the decision of the High Court the Supreme Court focused not on the motive or purpose of the landlord but rather on the nature or quality of the intention.  In this case, as admitted by the landlord, the intention to carry out the work was wholly conditional upon being necessary to get the tenant out. Had the tenant decided to leave voluntarily, say, upon receiving the schedule of works proposed to be carried out by the landlord, the landlord would not have carried out the works.  The Court asked itself whether this conditional intention would satisfy ground (f) and decided that in this case it did not.

Lord Sumption stated that by its very nature a conditional intention is not the fixed and settled intention that ground (f) requires.  He went on to say (and this was accepted by Lord Briggs in his judgment) that “The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily”.

The court accepted that the authorities establish that the question of whether the landlord has the requisite intention has to be determined as at the time of the hearing.  This position remains the case.  Lord Briggs addressed the perceived potential difficulties in assessing conditionality of intention at the hearing date by suggesting that a more forensic examination of the landlord’s purpose or motive behind that intention might be necessary rather than relying on undertakings to the court by the landlord to carry out the works if a new tenancy is refused,  The purpose of this assessment being to enable the court to decide whether the landlord would have done the relevant works if the tenant had left voluntarily.

Key points

  • A fact specific case which demonstrates that a landlord who wanted to obtain vacant possession of premises at the end of a tenant’s lease was not  able to devise a package of works for the sole purpose of doing so
  • The Court accepted that the matter would be complicated where a landlord intended to carry out only parts of a scheme of works whether or not it was necessary to do so, but other parts only if it was necessary in order to gain possession.  It stated that in those circumstances it would only be those works the landlord intended to carry out regardless which the court should take into account.  This may make such cases more lengthy and costly but is necessary to give effect to the intention of Parliament
  • Well advised landlords will ensure that their commitment to carry out the works is apparent from the outset and that it is evident that the works will be carried out whether or not the tenant voluntarily departs
  • Whilst it did not alter the decision for this landlord the Supreme Court did helpfully accept the landlord’s argument that the landlord’s purpose or motive are irrelevant except for the purpose of testing whether a firm and settled intention exists
  • had the landlord been successful the Act still requires that a tenant is paid statutory compensation by their landlord if they successfully oppose the grant of a new tenancy. This compensation amounts to either the rateable value of the premises, or double the rateable value if the tenant or a successor to the tenant’s business has been in occupation for longer than 14 years