S Franses Limited v The Cavendish Hotel (London) Limited
The recent case of S Franses Limited v The Cavendish Hotel (London) Limited has expounded one of the landlord’s grounds of opposition, namely section 30(1)(f) of the Act (known as the redevelopment ground, Ground F).
The tenant, S Franses Limited, held their premises in the Cavendish Hotel in London under two leases, which were due to expire in January 2016. The tenant sought renewal of these leases. The landlord, The Cavendish Hotel (London) Limited, opposed the renewal relying on Ground F.
Under Ground F a landlord can refuse a renewal of a lease if the landlord intends to demolish or reconstruct the property (or a substantial part of it), such that it would not be reasonable to do these works without obtaining possession of the property.
What works did the landlord intend to do?
The landlord proposed a scheme of works which, by their own admission, contained elements that were solely included to ensure that they would obtain possession of the tenant’s premises, and therefore were contrived to ensure reliance on Ground F.
It was clear that the works, in particular the elements that solely existed for the purposes of Ground F, were not commercially viable. In fact, no planning permission had been obtained for the works, and this was required for change of use and certain other works that were not within the proposed scheme.
Was the landlord’s motive for undertaking the works relevant?
In short, no. Whilst it was clear that the landlord’s motive for the works, or at the very least elements of those works, was to ensure the tenant did not get a renewal, this was deemed to not be relevant and that only the landlord’s intent to physically undertake the works mattered.
However, it is worth noting that an uncommercial scheme of works, created for the purpose of evicting a tenant, might draw additional scrutiny in terms of proving the necessary intent. A judge will inevitably be more sceptical if works are not commercially sensible, and therefore a landlord may find it harder to prove the necessary intent.
What must the landlord intend?
The landlord must have an honest, genuine, fixed, settled and unconditional intent to undertake the works which require repossession of the property. Just as importantly, the landlord must be able to prove this intent to the judge’s satisfaction.
Whilst there are technical points to what constitutes such intent, a good starting point is to ask – can it be proved that the landlord will do the works if the lease is not renewed?
In S Franses Limited v The Cavendish Hotel (London) Limited a decisive factor was that the landlord gave an undertaking to commence the works as soon as they had vacant possession. This undertaking, combined with the witness evidence given by a director of the landlord, was sufficient to satisfy the judge.
What can a tenant do if faced with a contrived scheme of works aimed at preventing a renewal?
Simply showing that the works are contrived is not going to help as it stands. A tenant must therefore focus on whether or not the landlord intends, and can prove that they intend, to undertake the works and whether or not the works actually require possession of the property. Specifically, a tenant should consider:
- Do the proposed works actually require possession of the property? This is both from a practical construction perspective, and a legal point of view. For example, it may be that elements of the works can be done under the landlord’s right of entry and therefore possession would not be required.
- How can the tenant ensure that the landlord completes any uncommercial elements of the works? If the landlord gives an undertaking then this will go some way towards this, however the tenant should ensure its terms contain a right for the tenant to inspect the works (ideally periodically and on completion).
- Is the landlord actually in a position to be doing uncommercial works? For example, a landlord in a precarious financial position will find it much harder to persuade a judge that they have the necessary intent to undertake works at a significant cost, when the only short-term benefit is repossession.
What should a landlord do if they want to rely on uncommercial works to regain possession of a property?
S Franses Limited v The Cavendish Hotel (London) Limited clearly opens up the avenue for a sufficiently resourced landlord to undertake a scheme of works to ensure repossession of the property at the end of a protected commercial lease. However, to assist in proving the necessary intent a landlord should consider:
- How will the landlord demonstrate intent? Consider if an undertaking can be given.
- How uncommercial are the works? If works are uncommercial they can still be relied on for the purposes of Ground F, but if the landlord can show a long-term rationale for the works then it will be easier to demonstrate the necessary intent.
- Are there any other grounds that could be relied upon to oppose a renewal? Other grounds, if applicable, could act as a backstop to any failure to sufficiently demonstrate intent.
Appeals
S Franses Limited v The Cavendish Hotel (London) Limited is the subject of various appeals, and a possible direct appeal to the Supreme Court, and therefore there may be further developments in the near future.
For further information please contact either Jane Bloomer on 01604 258079 or by email to [javascript protected email address], or Stephen Ruse on 01604 258024 or by email to [javascript protected email address].
