First decided case under section 30 since the Supreme Court decision in S Franses v Cavendish House Hotel (London) Ltd

Summary

Despite being a Central London County Court decision, the London Kendal Street No 3 case (see here) is the first reported decision in which a court has applied the test established by the Supreme Court in S Franses in deciding whether the redevelopment ground of opposition to lease renewal has been proved: there is a need to decide whether the landlord would intend to carry out the same works if the tenant left the premises voluntarily.

The London Kendal Street No 3 case involved the landlord's opposition to the tenant's business lease renewal. The tenant argued that the landlord did not have the requisite intention required by section 30 (1) (f) Landlord and Tenant Act 1954 ("1954 Act").The Court had regard to the S Franses case and also had to consider the possibility of other tenants in the building obtaining an injunction to stop the landlord from carrying out its works. It was still held on the evidence, that the landlord had the requisite intention required by ground (f) to carry out its works.

Landlord's intention to demolish/reconstruct

In December 2018, the Supreme Court decision in S Franses (see here Franses v Cavendish Hotel Ltd briefing note) caused some consternation for landlords but came as welcome news for tenants seeking renewal of their business tenancies. In S Franses, the landlord devised a scheme of works with no real practical value to obtain possession of valuable space to oppose renewal of the tenant's lease.

The 'Franses test'

In S Franses, the Supreme Court ruled that to oppose a statutory lease renewal under section 30 (1) (f) (this ground applies where (paraphrasing) on the termination of the current tenancy, the landlord intends to demolish or reconstruct the property (or a substantial part of it) and could not reasonably do so without obtaining possession: the so- called 'redevelopment ground'), the landlord must not only show that it has the requisite intention to carry out the works but that its intention to do the works in question is not conditional on whether its tenant chooses to seek a new lease.

The question to be considered is: Would the landlord intend to do the same works, even if the tenant left of its own accord? Following S Franses, the landlord's intention to demolish or reconstruct the premises must exist independently of the tenant's claim to a statutory new tenancy.

London Kendal Street No3 Ltd v Daejan Investments Ltd: case facts

The landlord served a section 25 notice on the tenant to terminate the tenant's lease of Suite C2, ground floor premises at Park West, Marble Arch, Edgeware Road, London. The landlord indicated also that it would oppose the grant of a new lease on the basis of ground (f).This lease was one of four leases on the ground floor of the same building held by a group of companies (IWG). IWG's business was the granting of short-term licences to office occupiers and the property in question (Suite C2) comprised facilities available for common use by those occupiers. The building had a large disused basement and the landlord wanted to restore the basement so it could be let on a commercial basis. On Suite C2 specifically, the landlord wanted to create a new front entrance and lobby with a new lift and staircase to the basement. The landlord had previously started works on the basement, but these works had stopped when IWG threatened an injunction because of high noise levels and disturbance.

Tenant's argument

While the tenant accepted that the landlord had a subjective intention to carry out the works (there was a firm and settled intention to carry out the works (building contract awarded and architect and engineer's plans were submitted in evidence) and this was not likely to be changed, it argued that, objectively, the landlord had no reasonable prospect of being able to do so (there was an obvious impediment to the landlord's plans that would result "in rendering [the landlord's] plans fanciful"). IWG was seeking an injunction to stop the works proceeding based on noise nuisance and on breaches of covenants for quiet enjoyment and non-derogation from grant. In addition, the fact that there were residential tenants on the upper floors of the building made it impossible to do the works outside of office hours.

What did the court decide?

The court highlighted that the landlord could fund the works, the contracts were in place, there were no difficulties with planning, the timescales were realistic and the landlord needed to start the works because of the problems in the basement that needed resolving (damp and corrosion needed attention to maintain the integrity of the building). In addition, the landlord had given an undertaking to the court to carry out the works after vacant possession had been given (subject to an injunction not being granted). There was evidence that the landlord's intention to carry out the works was reached at an early stage well before the section 25 notice was served. Consequently, the landlord had the requisite intention to carry out the works. The S Franses test was satisfied.

The judge decided that even if an injunction were to be granted (that's a question to be resolved another day), it would be unlikely to be absolute - a court may be reluctant to create a situation where one party is prevented from carrying out works to its own property. Sometimes, a court may impose time limits in the injunction stipulating when works can be carried out or include other provisions limiting any potential disruption.

Comment

Of practical interest, is the tenant's argument that the landlord could not show a reasonable prospect of being able to carry out the works (a requirement to rely on ground (f)) because other tenants in the building (admittedly part of the same group of companies as the tenant) would seek an injunction to prevent the works proceeding on the grounds of nuisance or breach of landlord's covenants. Although that argument was not successful on the facts, this case does highlight the importance of taking into account the effect of the landlord's proposed works on third parties when considering the prospects of success under ground (f).

The court also considered the time period for carrying out the landlord's works. As the building contract for the works was already in place (and this contract included an eight-week lead-in time), the judge was satisfied that even if the works were to be delayed (e.g. by the threat of an injunction), there was still ample time for them to start within that time-frame. The long stop date for commencement of the works was six months and 21 days from the date of the court's judgment. The court stated that "the target is achieved when the works commence not when they are completed".

We will have to wait for another case to see whether the S Franses test is applied again and in what circumstances. Interesting times.