Lawbite: When a business tenancy “ought not” to be renewed

• Real estate development and regeneration
• Real estate sector

22-07-2014

Youssefi v Mussellwhite [2014] EWCA Civ 885

Horne & Meredith Properties Ltd v Cox [2014] All ER (D) 194

These two cases concern opposition to lease renewals on the grounds of the tenant’s breach of covenant (“grounds (a), (b) and (c)” under s.30(1) of the Landlord and Tenant Act 1954).

The Horne case demonstrated that a landlord relying upon ground (c) (“other substantial breaches of the tenancy or any other reason connected with the tenant’s use or management of the holding”) does not always have to demonstrate that the tenant has breached its covenants, so long as there is a sufficiently compelling “other reason”.  In Horne it was a history of the tenant harassing the landlord with vexatious litigation over a prolonged period.

In Youssefi, the landlord opposed the grant of a renewal lease on three grounds:

• Breach of repair and maintenance obligations (ground (a));
• Persistent delay in paying rent (ground (b)); and
• Other substantial breaches of the tenancy or any other reason connected with the tenant’s use or management of the holding (ground (c)).

The Court of Appeal ultimately held on the facts that only ground (c) was established, in relation to breach of user covenant, and failure to allow the landlord access.  The interest of the decision lies in the Court’s approach to the additional requirement which the landlord must satisfy where it relies on any of these grounds, namely persuading the court that as a result the tenant “ought not” to be granted a new tenancy.  This is essentially a judgment as to whether it would be unfair to the landlord that a new tenancy should be granted to that tenant.  The landlord need not show any adverse impact on rental or capital values.

In considering the “ought not” test as it relates to grounds (a) and (b), the court must focus purely on the breaches of covenant.  However, as regards ground (c) the court can consider a much broader range of factors: “any other reason connected with the tenant’s use or management of the holding”.  Here, that enabled the court to take account of the tenant’s history of being “combative and obstructive”, among other factors.  Grant of a new tenancy was refused accordingly.

The cumulative effect of the two cases is that ground (c) is of extremely wide application.  Grounds (a), (b) and (c) are attractive to landlords, since if they can be established the landlord is not liable to pay compensation to the tenant for the non-renewal of their tenancy.  While a landlord needs to be careful about opposing renewal on grounds which it is not certain of justifying, cases such as this may give ammunition to landlords trying to persuade tenants to comply with their obligations, throughout the term of a lease.