Recent developments on the opposition of granting new leases under the LTA & redevelopment break clauses

Under Section 30 of the Landlord and Tenant Act 1954, grounds are set out upon which a landlord can oppose the granting of a new lease to a commercial tenant, with one of the most prominent being ground (f). Under this ground, a landlord can oppose a new lease if on the termination of the current tenancy, the landlord intends to demolish, reconstruct, or otherwise conduct substantial work on a substantial part or whole of the holding, and couldn’t do so without obtaining possession.

Under existing case law, it has been highlighted that the landlord needed to show a ‘realistic’ prospect that a redevelopment would take place. The Supreme Court case of S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62 highlights this by considering whether a landlord could oppose the grant of a new tenancy under s.30(1)(f) if the works they intended to undertake only occurred if the tenant intended to stay and would not have occurred if they left voluntarily. The court confirmed that a landlord’s intention had to be unconditional, and that the landlord must have been able to practically redevelop the property.

Recent developments – s.30(1)(f)

Man Limited v Back Inn Time Diner Limited [2023] EWHC 363 (Ch):

More recently, this case considered the test of intention. The case concerned a landlord that intended to use s.30(1)(f) by redeveloping the premises into a multi-story-mixed-use-development. The Court was made aware however that planning permission had been refused, and therefore it was found on the first instance that the landlord did not have a ‘realistic’ prospect of redeveloping the property. This was decided as planning permission was not considered to be achievable at the time and the landlord did not appear to have the necessary funds to complete the works.

The appeal of the case focused primarily on the funding of the redevelopment, with Sir Anthony Mann deciding:

• While there was some limited evidence to indicate that a redevelopment could occur, this evidence was not disclosed until the start of trial and therefore could not be considered.
• The evidence relating to the landlord having security for funding through other properties was not well established enough, and therefore could not be considered.

The appeal also concerned the wording of the test, with Sir Anthony Mann confirming that the correct legal test for funding is the same for obtaining planning permission, this being a ‘real’ as opposed to a ‘fanciful prospect’.

GT Motoring Solutions Ltd -v- Williams [2023] 1 WLUK 231

This is another case which demonstrates the need for careful planning. This case concerned a landlord that intended to use s.30(1)(f) to seek a combined planning permission to both demolish the premises and construct apartments.

The case turned on the evidence currently available, with HHJ Kelly finding that:

• There wasn’t sufficient evidence regarding the likely cost of the development, nor was there any analysis of the likely return on the redevelopment, the demand for properties of that kind, or the sale and rental value of the redevelopment.
• There was insufficient evidence about the ability of the landlord to pay for the redevelopment.
• HHJ Kelly concluded that even if Her Honour was incorrect regarding her previous points, Her Honour was not satisfied that the work had a ‘realistic’ prospect of being started on termination of the lease. Her Honour was furthermore unsure about how long the planning process would take and on the availability of a demolition team if permission is granted, due to a lack of evidence.

Her Honour therefore concluded that there were too many unknowns and so the landlord did not satisfy the requirements of s.30(1)(f).

Conclusions

These cases demonstrate the value of ensuring that your development plans are in place and are achievable before claiming s.30(1)(f). While in Man v Back Inn, some of the evidence was not disclosed in time and therefore might be a more exceptional scenario, it reminds us that it is still important to ensure that every affair is in order to succeed under the definition of s.30(1)(f). Perhaps what’s most important is to ensure that planning permission has been granted or is achievable, as shown by evidence, consultants, surveyors and other experts should be lined up, and funding is available. These cases are furthermore a reminder that the burden remains on the landlord to demonstrate a ‘realistic’ or ‘real’ intention.

Recent developments – Redevelopment Break Clauses

B&M Retail Ltd v HSBC Pension Trust (UK) Ltd [County Court at Central London, 3^rd March 2023]

Lastly, this case addresses the question of under which circumstances an inclusion of a redevelopment break clause in a renewal lease would be appropriate.

As a brief background, the landlord was bound to agree that the tenant should have a new tenancy as they failed to respond in time to their notice under s.26 of the LTA, and therefore were unable to use s.30(1)(f). The crux of the case therefore, focused on the length of the term of the new lease and whether the tenancy should contain a rolling break clause for redevelopment.

In the end, the Court decided that if the new lease didn’t contain a break clause, it would cause prejudice to the landlord’s redevelopment plans, and so would cause a substantial loss in profits. HHJ Saunders concluding that this trumps the tenant’s current position. His Honour also preferred the landlord’s expert evidence, considering it to be a “sound and practical opinion”. His Honour further decided that the break clause should be exercisable immediately on giving 6 months’ notice.

With regards to the length of the lease, it was decided that 5 years would be reasonable in all the circumstances, as opposed to the landlord’s proposed 18 months.

Conclusions

The courts have shown that they are reluctant to disrupt redevelopment plans, especially where better expert evidence prevails in demonstrating substantial prejudice towards the landlord. This case also highlights the importance of ensuring that the two-month period to respond to a tenant’s s.26 notice is adhered to, so as to prevent potentially unnecessary disputes.

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