Business Law: Lease renewal ruling could be good new for landlords, explains Fenella Eddell

The Landlord and Tenant Act 1954 grants an automatic right of renewal to tenants of business premises, known as “security of tenure”, unless the landlord and tenant agree, before the lease is granted, to exclude the statutory right to renew.

Where a lease grants security of tenure, a landlord can only oppose a tenant’s application for a new lease if it can prove one of the statutory grounds of opposition.

The most common of these grounds is the landlord’s intention to redevelop the premises (Ground F). In order to rely on Ground F, a landlord must be able to show, amongst other things, an unconditional intention to carry out the redevelopment works.

In the recent case of S Franses v Cavendish Hotel (London) Ltd, the tenant indicated that it was prepared to do whatever necessary to remain in the prestigious Jermyn Street location. The landlord made no secret of the fact that it had put together an artificial scheme of works with the specific intention of defeating the tenant’s 1954 Act protection, regardless of the “commercial or practical utility” of the works which, the tenant argued, meant that the landlord could not show the necessary genuine intention to redevelop.

The High Court, however, held that it was only a landlord’s intention to carry out the works that mattered, not its motive in doing so. The landlord gave an undertaking to the court that it would indeed carry out the works, which was sufficient evidence of its intention. Whether or not a landlord subsequently avoids carrying out the works is irrelevant.

This case is potentially good news for landlords and worrying for protected business tenants in sought-after properties, where landlords may similarly be looking to maximise investment value or seek a better tenant on more favourable terms.

The extensive works required to satisfy Ground F will inevitably come at a significant cost (over £700,000 in this case) so it is unlikely that many landlords would have sufficiently deep pockets to go to such lengths. It is certainly food for thought, however, if a landlord is unable to prove any of the other grounds for repossession.

Both landlords and tenants of protected leases should pay close attention to what happens next as the tenant has been granted permission to apply to appeal to the Supreme Court, and so the position may yet change.

•Fenella Eddell is a solicitor in the property department at Barker Gotelee Solicitors.