The end of the Landlord & Tenant Act 1954?

The Landlord & Tenant Act 1954 provides a commercial tenant with security of tenure i.e. continuity of occupation. A lease (which is protected under the Landlord & Tenant Act 1954) can be renewed by a tenant, through the serving of a section 26 notice. Alternatively, a landlord can offer a new tenancy by serving a section 25 notice. Both notices are to be served 6 to 12 months before the end of an existing lease and only one notice can be served i.e. if a tenant has already served a section 26 notice, then the landlord cannot go on to serve a section 25 notice and must respond to the tenant’s original request for a new tenancy.  If neither party serves a notice, then the lease will automatically continue (called ‘holding over’) until one of the parties instigates the process. It will often be more favourable for one party to serve a notice over the other, depending on market conditions, i.e. whether market rents have fallen or risen.

A landlord can only oppose a tenant’s request for lease renewal under certain circumstances. These are set out in the 7 grounds (a-g) of Section 30 (1) of the Landlord & Tenant Act 1954, as summarised below :-

  • a) Tenant's failure to comply with repairing obligations in the lease.
  • b) Tenant’s failure to pay rent
  • c) Tenant’s failure to comply with other obligations in the lease
  • d) Landlord has offered suitable alternate accommodation
  • e) Landlord wishes to end a sub-tenancy of part of the property as they would earn more by letting the whole
  • f) Landlord wishes to re-develop the premises
  • g) Landlord wishes to occupy the premises for their own business

If a Landlord does successfully terminate a tenancy under grounds e, f or g then the tenant will receive compensation. If they have been in occupation for less than 14 years then this will be 1 x the Rateable Value of the premises. Or, if they have occupied the property for 14+ years then the compensation received will be 2 x Rateable Value.

S Franses v Cavendish Hotel (London) Ltd. [2017]

The Landlord & Tenant Act 1954 primarily exists to protect tenants but a recent case, ‘S Franses v Cavendish Hotel (London) Ltd. [2017] regarding ground f of Section 30 (1) has cast doubt on whether the existing legislation is fit for purpose.

S Franses carried out a business specialising in historical tapestries, carpets and textile art, in the ground floor and basement of The Cavendish Hotel, in the St James’s district of Central London. S Franses wished to renew their tenancy and served a Section 26 notice onto the landlord. However, the landlord successfully opposed the notice under, ground f, as they wished to re-develop the premises.

Why is this an important case?

To successfully end a tenancy under ground f, landlords are expected by the courts to provide evidence of their intention to re-develop a premises. This could be in the form of plans, details of contractors appointed, surveys undertaken, funding being put in place and planning applications being accepted. However, in S Franses v Cavendish Hotel (London) Ltd., while the Landlord did have a clear intention to carry out the works, they provided little supporting evidence. At the time of hearing, no planning permission had been granted and some of the works were only devised to satisfy ground f.

The landlord’s plans to re-develop comprised a ‘substantial’ part of premises and were of a ‘substantial’ nature. However, some of the works seemed to serve no discernible purpose e.g. part of the basement was to be lowered which rendered it unusable and an internal wall was to be demolished but then replaced, with a similar wall. It was therefore agreed that at least part of the development would need to be reversed. The landlord could not guarantee that they would not reverse the whole project on the very next day after the lease had expired.

It is clear that in the case of S Franses v Cavendish Hotel (London) Ltd. the landlord intended to carry out the works, but for the sole reason of wanting to evict the existing tenant. In this case it appeared to be irrelevant that the Landlord’s motive to redevelop was not genuine.

Other landlords are likely to follow suit and will feel they do not have to properly justify their intention to re-develop.

S Franses have appealed to the Court of Appeal and are seeking permission to appeal directly to the Supreme Court, so any ramifications are still unknown. Whereas for now the Landlord & Tenant Act 1954 will do its job of protecting tenants, this apparent absence of a need for landlords to justify themselves, is a worrying prospect for the future. 

Conclusion

Tenants should aim wherever possible to obtain leases of business premises within the protection of the Landlord & Tenant Act 1954, so they at least have some protection for future continuity of their business.

If a tenant has a lease protected by the 1954 Landlord & Tenant Act and they receive a Section 25 notice from their landlord objecting to the grant of a new lease tenancy on the ground of redevelopment (or any other ground) they should immediately consult with their solicitor or surveyor.