The Supreme Court held that a business landlord cannot oppose a new tenancy under the Landlord and Tenant Act 1954 by relying on works it would carry out only in order to remove the tenant. The Cavendish Hotel had advanced a costly and largely useless scheme of alterations at 80 Jermyn Street solely to satisfy the statutory ground for recovering possession. Because it would not have done those works if S Franses Ltd had left voluntarily, it lacked the fixed and settled intention the Act requires.
A scheme designed to remove the tenant
S Franses Ltd occupied the ground floor and basement of 80 Jermyn Street under an underlease for 25 years from 2 January 1989. It used the premises as a retail art gallery, showroom and archive for antique tapestries and textiles. The Cavendish Hotel (London) Ltd, the head lessee, ran the rest of the building as a hotel. The freeholder was the South London and Maudsley NHS Foundation Trust.
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Westminster City Council had designated St James’s a special policy area, seeking to protect uses such as art galleries and niche retail. The tenant’s premises had a specific mixed planning use, so a material change of use required planning permission.
On 16 March 2015 the tenant requested a new tenancy. On 15 May 2015 the landlord opposed that request, and on 8 June 2015 the tenant applied to the Central London County Court. The court tried, as a preliminary issue, whether the landlord had established its ground of opposition.
Part II of the Landlord and Tenant Act 1954 gives a business tenant a qualified right to seek a new tenancy. The court must grant one unless the landlord establishes one of seven grounds in section 30(1). Ground (f) applies where, on termination, the landlord intends to demolish or reconstruct the premises or a substantial part of them, or to carry out substantial construction work, and could not reasonably do so without possession. Section 31A prevents the landlord relying on that ground where the tenant will permit access so that the work can reasonably be done without possession and without substantial interference, or will accept a tenancy of an economically separable part. If a new tenancy is refused on this ground, section 37 entitles the tenant to compensation.
The landlord put forward three successive schemes. HHJ Saggerson found that the scheme eventually relied on was designed with the material intention of undertaking works that would lead to the tenant’s eviction, regardless of their commercial or practical utility and irrespective of the expense. The works were meant to be substantial enough for ground (f), too disruptive to be done while the tenant remained, and free of any need for planning permission.
The final scheme involved substantial alterations to the premises. The judge accepted that the landlord was prepared to pay for and carry out those works to obtain possession. It would have no reason to carry them out if the tenant left of its own accord.
It was common ground that the works had no practical utility. They needed no planning permission themselves, but could not be used without permission for a change of use, which the landlord did not intend to seek. The landlord supported its evidence with a written undertaking to carry out the works if a new tenancy was refused. Its case was that the works were intended because they were a way of obtaining possession, and its principal witness said that the scheme was designed purely to satisfy ground (f). The landlord was prepared to risk rendering the premises unusable in order to remove the tenant.
Judge Saggerson found that the landlord genuinely intended to do the works if that was necessary to obtain possession, but not if the tenant left voluntarily or if the works could be done under a right of entry. A longer-term hope of adding 28 hotel bedrooms, to be reviewed in 2018, was not the scheme relied on for ground (f).
Why the lower courts accepted the scheme
Judge Saggerson held that ground (f) was made out and declined to order a new tenancy. In the High Court, Jay J agreed, but gave permission for a leap-frog appeal. Those decisions followed authority treating the section as requiring a genuine intention to carry out qualifying works and a practical ability to do so. On that approach, motive, reasonableness and the objective utility of the works were irrelevant except as evidence that the intention was not genuine.
Lord Sumption accepted that the touchstone remains a firm and settled intention, and that purpose or motive is not an independent ground of decision. The Act confers only qualified security, and a landlord who truly intends to demolish or reconstruct may choose how to do so. Those propositions did not decide this appeal.
The intention must exist independently of the tenant’s claim
Lord Sumption, with whom Lady Hale, Lady Black and Lord Kitchin agreed, said that the case turned on the nature of the intention required by ground (f). The entire value of the proposed works lay in getting rid of the tenant rather than in any benefit from the reconstruction. In commercial reality, the landlord was proposing to spend money to obtain vacant possession. If that were enough, a tenant would often leave without a hearing, the landlord would never need to honour an undertaking, and no interest protected by section 30 would be served. Where the parties have not contracted out, the bare right to possession at the end of the term is the interest Part II is designed to restrict.
The landlord’s intention was conditional: it would do the works only if they were necessary to remove the tenant. The courts below considered the condition satisfied by the trial, because the tenant was not leaving voluntarily and the works could not be done by a right of entry. A dictum of Neuberger J in another case suggested a similar view, although the point was not directly in issue there. Lord Sumption disagreed. The problem was not conditionality as such, but the nature of this condition.
Ground (f), read with section 31A, assumes that the tenant’s occupation obstructs an intention to do the works. That intention must therefore exist independently of the tenant’s statutory claim, so that occupation under a new tenancy would obstruct it. It cannot depend on whether the tenant chooses to assert the claim and persist in it. The acid test was whether the landlord would intend to do the same works if the tenant left voluntarily. On the findings, it would not. Nor would it do them if the court held that they could reasonably be carried out while the tenant remained. That was not the fixed and settled intention ground (f) requires. The same answer would apply to a proposed demolition which was conditional on possession having to be obtained from the court.
Lord Sumption said that motive and lack of utility may still be examined, but only because they may show whether an intention is genuine or conditional in this way. He rejected the suggestion that this construction should be avoided because landlords might conceal their intentions: the court had to proceed on the footing that litigants are honest or will be found out. He did not need to decide the tenant’s more radical argument that the apparent intention should be disregarded, by analogy with the tax decision in W T Ramsay Ltd v Inland Revenue Commissioners, because it lacked a commercial purpose.
He also explained the likely approach where some works are intended unconditionally and others only in order to obtain possession. The result is likely to depend on the precise facts. If, at trial, the landlord would not carry out the additional works were the tenant hypothetically to leave voluntarily, the claim should normally be resolved by reference only to the works unconditionally intended.
Purpose as evidence, not a separate test
Lord Briggs, with whom Lady Black and Lord Kitchin agreed, agreed with Lord Sumption’s conclusion and reasons. He recognised the concern that asking at the hearing what the landlord would do if the tenant left voluntarily may appear hypothetical or counter-factual. Nothing in the decision altered the rule that the landlord’s intention is assessed at the hearing. By then, voluntary departure may be only theoretical, and the landlord may honestly have formed no separate plan for it.
The answer was to examine purpose or motive as evidence of the quality of the current intention. Section 30(1)(f) speaks of intention, so a direct purpose test is not permitted. Parliament cannot, however, have intended a landlord to defeat the claim by proving an intention to do works purely to remove the tenant, where the works would not be done if the tenant left voluntarily. An undertaking may show that an intention is genuine, but not that it is unconditional. Here the intention was genuine; the admitted purpose showed that it was conditional.
A desire to see the tenant leave will not always, or even usually, defeat the landlord. Redevelopment is often influenced by the tenant’s departure, for example where the landlord wants the premises for its own use, a sale, or a re-letting at a higher rent. Beyond testing genuineness, motive may be examined only to decide whether the landlord would have done the relevant works if the tenant had left voluntarily. Lord Briggs expected that acid test to complicate some cases, especially where only a lesser scheme would have followed a voluntary departure, but considered it necessary to stop the statutory right being circumvented by works which, viewed as a whole, would not otherwise have been undertaken.
Verdict: The Court unanimously allowed the tenant’s appeal. It declared that the proposed works did not satisfy section 30(1)(f) because the landlord would not have undertaken them if the tenant had left voluntarily. The Court decided that preliminary issue only.
Source: S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62
