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Ruling highlights pitfalls for landlords opposing renewal of business tenancy so they can carry out substantial works

Landlords proposing to oppose a business tenant’s renewal of their lease because they intend to do substantial works on the premises, should ensure their motive for doing the work does not contradict their claim that they genuinely intend to carry out the works; that they do not count works they could do under a power of entry when considering whether their intended works are substantial; and that they will carry out the works within a reasonable period after termination rather than much later – or risk the tenant being entitled to renew.

A business tenant has a legal right to renew its lease if it is terminated unless the landlord can show grounds why it cannot. One of those grounds is where the landlord can show it intends to do substantial work to the premises ‘on the termination of the current tenancy’, and needs possession of the premises to do so.

The owner of hotel premises in London let the ground floor to a business tenant. The landlord served notice on the tenant terminating the lease. It said that it intended to do substantial work on the premises, so the tenant could not renew the lease.

The proposed works had no commercial purpose – they were merely to give the landlord the right to oppose renewal of the lease, and to take back possession of the whole building.

The tenant’s arguments included:

  • The proposed works were a sham. The landlord would not do them if the tenant remained in situ – and the purpose behind them was simply to recover possession of the building
  • Works that the landlord could do using its usual powers of entry under the lease, without the tenant having to leave, should not count when deciding whether the proposed works were ‘substantial’
  • The landlord would have to deal with planning and consent issues before the work could be carried out. This meant it would not be carried out ‘on the termination of the current tenancy’, as required if the landlord was to recover possession

The High Court reiterated the usual rule that a landlord’s motive for carrying out proposed works is irrelevant, unless the motive shows that its stated intention to do the work is not genuine. In this case, the landlord had given a legally binding obligation that it would carry out the work if it recovered possession of the building.

The Court did agree with the tenant that works which the landlord could have done by exercising its right of entry to do works under the lease should not count when determining whether the proposed works were ‘substantial’. Only the balance of the works was relevant. Whether this meant the proposed works in this case were not in fact substantial was left to be determined.

The Court also ruled that work for these purposes should be carried out within a ‘reasonable period’ after the termination, rather than started on the same day. In this case, the need to deal with planning and consent issues could take 12 months, and this was not a ‘reasonable period’ because the landlord could have dealt with these issues previously.

Operative date

  • Now

Recommendation

  • Landlords proposing to oppose a business tenant’s renewal of their lease on grounds they intend to do substantial works on the premises should ensure their motive for doing the work does not contradict their claim that they genuinely intend to carry out the works; that they do not count works they could do under a power of entry when considering whether their intended works are substantial; and that they will carry out the work within a reasonable period after termination rather than much later – or risk the tenant being entitled to renew

S Franses Limited v The Cavendish Hotel (London) Limited [2017] EWHC 1670

Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Tags: property, landlords, tenant, disclosure

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