Last month, the Supreme Court handed down its decision in S Franses Ltd v Cavendish Hotel, which develops the test landlords must satisfy to successfully oppose a lease renewal under Ground F of the Landlord and Tenant Act 1954 – both landlords and tenants should take notice.
The tenant, S Franses Ltd (“T”) had a lease of the ground floor and basement unit of a building on Jermyn Street, London; its landlord was the Cavendish Hotel (“Cavendish”), which occupied the rest of the building. In March 2015, approaching the end of the term of its lease, T served Cavendish with a statutory request for a new lease under the Landlord and Tenant Act 1954 (“LTA 1954”). Cavendish responded with a counter-notice opposing the new lease, relying on ground F under the LTA 1954. T sought to challenge this and applied to Court requesting a new lease of the premises.
Relying on ground F (under section 30 (1)) of the LTA 1954, a landlord can refuse to grant a new lease to its tenant if the landlord proves that it intends to demolish, reconstruct or carry out a substantial work of construction to the premises occupied by the tenant, and he could not reasonably do so without obtaining possession of the premises.
The question for the Court in S Franses Ltd v Cavendish Hotel was whether Cavendish had a firm and settled intention to carry out works.
In its evidence, Cavendish presented several schemes of works to demonstrate its intention, however, it made it clear to both T and the Court that its main goal was simply to get T out of the premises. A Cavendish director even admitted at trial that “the works were designed purely for purpose of satisfying ground f” and, the works would not be carried out if T vacated the premises voluntarily or if the Court decided that the proposed works could be carried out while T remained in occupation.
The High Court found that, whilst elements of the scheme of works had been contrived for the purpose of satisfying ground F, Cavendish genuinely did intend to carry out the works (albeit only if it was held to be necessary to get rid of T in order to carry out the works). It therefore had the intention required and was not obliged to grant T a new lease.
T appealed the decision and was granted permission to appeal directly to the Supreme Court.
What did the Court decide?
The Supreme Court found that Cavendish did not have the intention required to successfully oppose a new lease under ground F. Cavendish’s intention was not firm and settled – it was conditional intention in that it only intended to carry out the works if they were necessary to get T out of the premises. The Court confirmed that a landlord’s intention to carry out works could not be conditional on whether a tenant chooses to exercise its right to apply for a new tenancy – its intention must exist independently.
The Court accordingly ordered Cavendish to grant T a new lease.
In reaching its decision, the Court developed the test to determine whether a landlord had a firm and settled intention with the introduction of what it called “the acid test” – essentially, would the landlord carry out the works if its tenant left the premises voluntarily? If it would not, ground F would not be satisfied.
What does this mean for landlords and tenants?
On the face of it, the decision leaves tenants in a stronger bargaining position at the end of their lease should their landlord be opposed to granting a new lease. Should a dispute arise, tenants may be more willing to go to Court to force a landlord to prove its intention and, with the new “acid test” imposing a higher standard for landlords to satisfy ground F, this can only mean an increase in the complexity (and therefore the cost) of contested lease renewals.
Whilst the Court emphasised that it reached its decision based on the nature and quality of Cavendish’s intention rather than its motive or purpose, it is difficult not to interpret the decision as the Court taking landlords’ motives into consideration. Landlords would be wise to take note of the decision and be cautious in their approach to opposing lease renewals, noting that the Courts will be looking unfavourably on schemes devised to get rid of tenants.