Many developers will be familiar with the concept of “golden brick” contracts, where the sale is completed when the construction of new dwellings being built on land has reached the stage that allows the transaction to be zero rated for VAT purposes.
Should developers be concerned about the recent judgment in S Franses Limited v The Cavendish Hotel London Limited when relying on section 30(1)(f) of the Landlord and Tenant Act 1954 to obtain possession of premises?
In short, the Supreme Court’s ruling should not affect developers who rely on section 30(1)(f) of the Landlord and Tenant Act 1954 (“ground (f)”) because, developers, by their nature, have a genuine intention to develop the land or building that they have acquired.
Ground (f) will be satisfied if (1) the landlord has a genuine intention to redevelop the premises, (2) the redevelopment works cannot be carried out without obtaining possession, and (3) the works are not conditional on the tenant renewing its tenancy.
Background to the Case
The case concerned a landlord’s (Cavendish Hotel) right to oppose the grant of a new tenancy to a current business tenant (S Franses) under the Landlord and Tenant Act 1954.
The tenant carried on a business on the ground floor and basement of the Cavendish Hotel. It served notice on the landlord requesting a new lease, but the landlord served a statutory counter notice opposing the renewal of the tenancy under ground (f), which provides that the landlord intends to redevelop or reconstruct the premises on the termination of the current tenancy. The tenant applied for an order in the County Court and raised the issue of whether that ground of opposition was satisfied.
The landlord submitted to the Court that the redevelopment works would convert the premises into two retail units, however, this had little practical value because planning permission would be required to use the new units and the landlord intended to proceed regardless of whether it could obtain that permission. In addition, the landlord planned to lower the basement floor and to demolish an internal wall and replace it with a similar one for no practical reason other than to establish that the works were of a sufficiently ‘substantial’ part of the premises or were sufficiently ‘substantial’ works of construction. The landlord admitted that the proposed works would not be carried out if the tenant left voluntarily, but nonetheless gave an undertaking to the County Court to carry out all the works if vacant possession was ordered. It was accepted by the landlord that the proposed scheme of works was “designed with the material intention of undertaking works that would lead to the eviction of the tenant regardless of the works’ commercial or practical utility and irrespective of the expense”.
The County Court made a finding that that the landlord genuinely intended to carry out the works and that ground (f) was established. On appeal the High Court agreed, but gave permission for a leap-frog appeal to the Supreme Court as the basis of the decisions were made upon existing House of Lords authority which would bind the Court of Appeal.
The Supreme Court allowed the appeal, deciding that ground (f) could not be invoked and therefore the tenant should be granted a new lease.
- Read the full judgement here: https://www.supremecourt.uk/cases/docs/uksc-2017-0151-judgment.pdf
Watch the judgement summary here: https://www.supremecourt.uk/watch/uksc-2017-0151/judgment.html
Watch the hearing here (morning session): https://www.supremecourt.uk/watch/uksc-2017-0151/171018-am.html
Watch the hearing here (afternoon session): https://www.supremecourt.uk/watch/uksc-2017-0151/171018-pm.html
Reasoning for the Judgment
Ground (f) assumes that the landlord’s intention to demolish or reconstruct the premises is obstructed by the tenant’s occupation. In this case, the landlord’s intention to carry out the works was insufficient for the purposes of ground (f). The intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to renew its tenancy. Since the redevelopment works in this case were not going to be carried out if the tenant left voluntarily, the landlord’s intention would not satisfy the requirements of ground (f), due to its conditional nature. The landlord’s intention under ground (f) cannot be conditional on whether the tenant chooses to assert its claim to a new tenancy.
Following this decision, the Court now has to be satisfied that the works will be done, even if the tenant leaves voluntarily. It does not matter how genuinely the intention is held, if the landlord’s motive is to get rid of the tenant rather than carry out the works, then the landlord will not succeed.