Where a business tenant has the protection of the Landlord and Tenant Act 1954, the landlord’s ability to get vacant possession of the property is limited. A landlord who wants to redevelop must prove that they have a viable scheme and genuinely intend to carry it out. A significant decision by the Supreme Court means that landlords will now need to seek legal advice much earlier in the process to give themselves the best chance of succeeding.

‘The 1954 Act aims to give business tenants long-term security, while recognising that landlords need to be able to carry out redevelopment works to make the best of their property assets,’ says Simon Walker of Talbot Walker LLP. ‘The challenge for landlords is to prove that they have a firm intention to do the works. The Supreme Court has now made it clear that unless that intention is completely unconditional, the landlord is likely to fail.’

The landlord’s intention

The relevant rule is in section 30(1)(f) of the 1954 Act, which says that a landlord can oppose a tenant who wants to stay in the property if:

‘… on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises…or to carry out substantial work of construction…that he could not reasonably do…without obtaining possession…

The courts have looked on numerous occasions at what the landlord must show to prove that it intends to carry out the works. The case law has established a two part test:

• Does the landlord have a firm and settled intention of carrying out works so substantial that they could not be done with the tenant in occupation?
• Is there a reasonable prospect that the landlord will be able to carry out the works? For example, is it likely that the landlord will get planning permission and be able to find the necessary funding?

What if the landlord puts forward a redevelopment scheme that has been planned specifically to ensure that the tenant will have to leave but which the landlord would not otherwise intend to carry out? Does the landlord’s underlying motive matter?

The Supreme Court decision

These were the problems put to the Supreme Court in S.Franses v The Cavendish Hotel [2018] UKSC 62. The landlord wanted to get vacant possession of the part of the building let to the tenant which could eventually be used to create extra hotel rooms. The works proposed in the short-term, to block the tenant from getting a new lease were not related to that long-term plan. The landlord was unusually candid in confirming that the works were of no real value to it, beyond enabling it to get the tenant to leave. Crucially, the landlord admitted that if the tenant left the property voluntarily the works would not be carried out.

This proved fatal to the landlord’s case. The Supreme Court accepted that the landlord’s motive was generally irrelevant in a case like this but held that this was not the issue at stake. The problem for the landlord was that its intention to carry out the works was clearly conditional on whether or not the tenant chose to settle and leave voluntarily. All five Supreme Court judges agreed that this meant the landlord could not have the ‘firm and settled’ intention necessary to satisfy the requirements of section 30(1) (f) of the 1954 Act.

Impact on landlords

What this means is that in future, landlords will have to show that they are committed to carrying out their redevelopment plans regardless of any other considerations. A genuine plan to redevelop should still succeed, although the landlord will need to get legal advice as early as possible to ensure that the scheme it proposes is clearly viable from the outset. Tenants and their advisers will be looking for evidence that the scheme is not a genuine redevelopment plan, so the landlord’s proposals will have to be watertight.

This is, of course, only relevant where the tenant has a lease with 1954 Act security of tenure. The other likely outcome of the Supreme Court’s decision is that landlords will think much more carefully about whether to insist on new leases being outside the 1954 Act. Again, landlords should speak to their legal advisers to make sure they make the right commercial decision about this.

Tenants will feel that the Supreme Court has struck a fair balance, protecting them against spurious schemes designed solely to force them to leave. The key message for landlords who genuinely want the ability to redevelop is to get legal advice, ideally before a new lease is granted and certainly as soon as the landlord starts to make firm redevelopment plans. Timely advice could make the difference between a successful redevelopment and costly court proceedings.

For further information, please contact Simon Walker on 01264 721 705 or email simonw@talbotwalker.co.uk.