Category Archives: lease renewals

Lease renewals: landlord could restore redevelopment ground opposition

Landlords wishing to get back 1954 Act protected business premises on redevelopment grounds have been handed a boost by Waterstones Booksellers Ltd v Notting Hill Gate KCS Ltd [2016].

Here the landlord opposed the tenant’s application for a new lease on redevelopment grounds.

However, due to delays, the landlord withdrew its opposition being of the view that it might not be able to satisfy the ground (f) redevelopment ground before the hearing.

12 months later the landlord applied to the court to re-oppose the lease renewal.

The County Court upheld this.

The Civil Procedure Rules sometimes allow changes to statements of case and the retraction of admissions.

Relevant factors included:

– the landlord’s good faith;
– the way circumstances had changed for the landlord;
– no trial date had been set for the court proceedings and they had hardly progressed;
– the tenant was no worse off than it was originally and the landlord still had to make out the development ground; and
– the landlord would suffer relatively more prejudice than the tenant if it was not allowed to amend it’s statement of case especially as the landlord had guaranteed the tenant possession till January 2017.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Termination notice did not mislead Tenant as to Landlord’s intent

Under section 37A of the Landlord and Tenant Act 1954 (“1954 Act”), business tenants can claim compensation from any landlords who:

1. make misrepresentations, or

2. conceal material facts

that cause the court:

1. not to order the renewal of a business tenancy or

2. induce the tenant to:

2.1 refrain from making, or

2.2 withdraw,

an application to renew a business tenancy.

The compensation is to be sufficient to compensate the tenant for loss or damage sustained from the tenant quitting the property.

In Saturn Leisure Ltd – v – Havering LBC [2014] the council’s Romford Ice Arena was run by a private operating company.

The council wanted to get the site back vacant so it could do a property swap with a retailer.

To that end it served a termination notice on the private operating company under section 25 of the 1954 Act, basing its opposition to renewal on the following grounds:

(b) persistent non-payment of rent; and

(f) landlord’s intention to redevelop.

However the council also alleged that the private operating company was not a business tenant protected by the 1954 Act.

The private operating company accepted £150,000 off the council to quit the ice rink.

Later the private operating company alleged that the council had misled it by misrepresenting that the council had a settled intention to pull the ice rink down, regardless of anything else.

The High Court said the council had been transparent that its plans to demolish were contingent on there being a ruling, or agreement, that the private operating company had security of tenure but that that was sufficient.

This was because ground (f) of the 1954 Act has two separate limbs.

To fall within the ground the landlord may intend to:

1. to demolish, or

2. to demolish and reconstruct

the premises, or a substantial part of them.

In short it’s enough that the landlord intends to demolish to satisfy ground (f).

The private operating company was unable to put forward any evidence that denied or precluded the council having had an intention to demolish the premises if it had to, even though no planning permission had been required to be obtained for demolition. This was more demonstrably the case as the council had got the proper internal authorities to proceed on that basis.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Ongoing partnership: all partner tenants need to apply for statutory lease renewal

Where joint tenants want to renew their lease under the Landlord & Tenant Act 1954, the word “tenant” prima facie means all the joint tenants in whom the lease is vested.

So where the lease is vested in partners, the request and claim for a new tenancy would have to be made by all the tenant partners and cannot be validly made by one alone.

However section 41A of the 1954 Act permits an exception to the rule in the case of partnerships where not all of the joint tenants continue to use the leased premises for the purpose of the partnership business.

So, under section 41A(1), there are four conditions which require to be fulfilled:

1. the lease up for renewal must be vested in at least two joint tenants;

2. the property must include premises occupied for the purposes of the business;

3. the business must at some time during the tenancy have been carried on by all the joint tenants as partners; and

4. the business must now be carried on by at least one of the joint tenants, either on their own or in partnership with one or more other people AND no part of the property held under that lease may be occupied under the tenancy for a business carried on by the other joint tenant or tenants.

In the Court of Appeal case of Lie v Mohile [2014] the freehold was owned by the defendant who was one of the two partners. The claimant was the other. The defendant had leased the property to himself and the claimant for the partnership business.

The defendant had attempted to dissolve the partnership by notice of dissolution in 2011 but the notice had been ineffective and the partnership had continued.

The Court agreed with the County Court that the first three of those conditions were satisfied, but the fourth was not because in fact, the partnership continued to subsist and to operate from the premises so that the premises continued to be occupied by both partners for the purposes of the partnership business.

So it could not be said that the business was carried on “by one or some only of the joint tenants” (section 41A(1)(d)).

The claimant said that the defendant was estopped from raising the validity of the claimant’s renewal application on this ground late in the proceedings when he could and should have raised it much earlier.

However the Court said this preliminary issue went to the root of the Court’s jurisdiction to grant a new tenancy and so could not be barred out by an estoppel on the grounds the claimant relied on.

So the Court dismissed the claimant’s claim for a lease renewal.

Landlord need not show loss to resist lease renewal

Where a landlord resists the grant of a new business on fault grounds do they always need to show that they have incurred actual loss?

In Youssefi v Mussellwhite [2014] the tenant had requested a new Tenancy under section 26 of the Landlord and Tenant Act 1954 (“the 1954 Act”) but the County Court had ordered that the tenant’s lease (“the lease”) be terminated in accordance with section 64 of the 1954 Act without the grant of a new tenancy.

In the Court of Appeal, the Landlord’s opposition was based on two of the three fault grounds for opposition including:

“(c) that the tenant ought not to be granted a new tenancy in view of other substantial breaches by her of her obligations under the current tenancy, or for any other reason connected with the tenant’s use or management of the holding;…”

(“Ground C”)

The Court of Appeal found Ground C to be made out.

Under Ground C substantial breaches were persistent refusal to allow the Landlord access. Here the fact that the landlord might not have been able to show any loss resulting from the refusal of access was ruled irrelevant. Though as it was, the landlord would inevitably have incurred financial loss in the form of wasted surveyors’ fees for visiting the premises when they had been unable to get access.

Secondly Clause 2(9)(b) of the Lease required the tenant:

“at all times during the…term to use the Premises for the purposes of any retail trade within Classes A1 and A3 of the Town & Country Planning (Use Classes) Order 1987 and not to use the Premises or any part thereof for any other purpose without the written consent of the Landlord (such consent not to be unreasonably withheld)…”

This was ruled, as to its first part, to connote a positive obligation to keep the shop open, which had been majorly breached.

The court found that whilst the reason for use covenants may normally be to preserve the value of the reversion or the reversion of adjoining property, the landlord did not need to demonstrate a quantifiable loss to the value of the reversion in order to establish her case for opposing a new lease under Ground C.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Landlord wanted renewal lease use restriction which contravened competition law

As originally enacted the Competition Act 1998 (“the Competition Act”), did not apply to “land agreements”.

Article 3 of the Competition Act 1998 (Land Agreements and Revocation) Order 2004 defines these to include an agreement between undertakings which creates, alters, transfers or terminates an interest in land, or an agreement to enter into such an agreement. Obviously it includes leases. Article 4 of that order provided that “the Chapter I prohibition” was not to apply to such agreements.

That exclusion was removed by Article 2 of the Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010, effective from 6 April 2011.

In the Central London County Court, Chancery List case of Martin Retail Group Limited (claimant) v Crawley Borough Council (defendant) (2014) the preliminary issue in an unopposed application for renewal of a business tenancy under Part II of the Landlord and Tenant Act 1954 (“the ’54 Act”) was whether the use restriction clause of the proposed new lease should expressly exclude the sale of alcohol, grocery, convenience goods and other uses falling within Class A1 of the Town and Country Planning (Use Classes) Order 1987.

The claimant said this was prohibited by competition legislation and would therefore be void under the Competition Act 1998 as amended by the Competition Act 1998 (Land Agreement Exclusion Revocation) Order 2010.

The claimant wanted to be able to sell a wider range of goods from the Premises than the user clause in the existing Lease would permit. In particular it wanted to sell groceries, including fresh foods, beers, wines, spirits and household goods i.e. convenience goods and have the shop as a convenience store.

Where there is no agreement between landlord and tenant as to those terms of a tenancy, section 35 of the ’54 Act provides that those other terms shall be as agreed between the landlord and the tenant or determined by the court, and in determining those terms, the court should have regard to the terms of the current tenancy and to all relevant circumstances.

If the proposed use clause was unlawful, because it breached competition legislation, then, where there was no agreement as to its inclusion, it seemed highly likely that the court would decide that it could not be imposed on the parties under section 35.

However, the judge reached no concluded view on that because it was not fully argued before him.

The relevant market for convenience stores for the purposes of competition law was a radius of ½ mile of the Premises, a distance customers would be prepared to walk to shop at such stores.

The defendant argued it was in the interests of the community to have a range of different traders and retail outlets available to local residents not just a supermarket and that their scheme protected Martins from newsagent competition.

The defendant also said there had been no evidence to show that the effect of the letting scheme had been to increase prices on the parades where it operated and the letting scheme was not financially advantageous to the defendant since its effect was potentially to depress or limit market rents.

The court said the proposed use clause was a breach of the Chapter 1 prohibition because the effect of such a clause, within the letting scheme, would be to restrict competition in the sale of convenience goods on the parade. The defendant accepted that subsection 9(2) of the Competition Act placed the burden on the defendant of proving that the proposed use clause would be an “exempt agreement” within the meaning of subsection 9(1). Quite simply, the clause would be void unless the defendant could satisfy that burden. That burden would be discharged by showing that a disputed fact or matter was more likely than not to be true.

There was no reported decision on the issues here but the court was prepared to base its decision on the guidance issued by the Office of Fair Trading in “Land Agreements. The application of competition law following the revocation of the Land Agreements Exclusion Order” of March 2011. Especially the Chapter 5, headed “Applying the exemption criteria” and its Paragraph 5 which contained a summary of the conditions in subsection 9(1) of the Competition Act. While the OFT document was guidance, and without formal legislative effect, it provided a practical and sensible approach to analysing the conditions contained in subsection 9(1).

The court would consider whether an exemption had been established by reference to the four criteria which the guidance identified in paragraph 5.3.

The defendant had failed to show that the distribution of goods was improved or economic progress was promoted through the existence of a number of different retailers rather than via a supermarket or a number of similar retailers.

The proposed use clause and the other restrictions in the units on the parade fed a model of distribution determined by the defendant rather than by the market.

If the scheme were being set up from scratch and the restrictions imposed to ensure that one of the units was occupied by an anchor tenant until that tenant’s business had stabilised then the court might have come to a different conclusion on that issue.

As to the second criterion, there was unlikely to be a price benefit from the existence of the restrictions and that must be a matter of considerable concern to the community. An increase in the range of goods available and provision of a social hub might be a fair share of the benefits, if the evidence were to show such benefits arising from the restriction on competition. In considering this question the court had to balance the benefits against the negative impact of the restriction on competition and that the greater the restriction the larger the benefit for the consumer there had to be for the share to be considered fair. In fact, the community would not benefit from the restrictions contained in the proposed use clause and letting scheme.

The third criterion was the indispensability of the proposed restrictions to the viability of the Parade. Without them small traders would not come to it, the defendant said. But the court said a mix of retailers could be achieved at a shopping centre by the use of less restrictive covenants not conferring the monopoly that had been created by the defendant’s letting scheme as applied to that Parade. So the third criterion was not satisfied.

The fourth criterion was whether the restriction would allow the claimant and defendant the possibility of eliminating competition in respect of a substantial part of the products which the lease agreement required the claimant to sell and/or those which it prohibited it from selling.

One had to take into account the relevant market and the existing and potential competition in respect of the particular products in that market.

The market for the convenience goods the claimant wanted to sell was within a relatively short walking distance from the Parade. The proposed use clause clearly provided a means of eliminating competition in convenience goods on the Parade and within a relatively short walking distance.

If the relevant market had been geographically bigger so that the other convenience stores in the locality fell within its catchment area then there would be no such possibility of elimination.

The court concluded that that the proposed use clause, within the context of the current letting scheme, would contravene section 2 of the Competition Act 1998 and the defendant had not satisfied it that it would be an “exempt agreement” within section 9(1) of the Competition Act.

This blog has been posted as a matter of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Balancing parties’ interests on duration of lease renewal

Although the vogue is for shorter leases, the courts try to balance the interests of both parties on a lease renewal.

In Iceland Foods Limited-v-Castlebrook Holdings Limited [2014] Iceland applied to renew a lease of their supermarket in Sandbach.

The shop suffered from competition and they wanted 5 years for £37,500 per annum. Just long enough though if they wanted to upgrade plant in the shop.

The landlord, Castlebrook, wanted a 15 year lease at £182,350 per annum. As they wanted a high rent and a long fairly guaranteed income stream. 15 years is the maximum the court can order.

There were comparables but little likelihood of much demand for the store. This meant such comparables as there were were of little guidance as to how long a term the court should grant. The court recognised that it had a wide discretion under Section 33 of the Landlord and Tenant Act 1954 but that this had to be applied in line with the act’s policy of protecting the tenant’s interest in having a lease long enough to protect its business whilst not oppressing or being unfair to the landlord.

It ordered a new lease for 10 years with no break at an initial rent of £63,000 per annum.

The court had regard to the fact that Iceland had already occupied the place for 20 of the previous lease’s 35 years.

Each case will turn on its own facts and the assessment and balancing of the parties’ interests and a wide range of circumstances. The court is not interested in the policies of particular landlords and particular tenants as to the length of renewals.

The landlord in this case had gone for a greatly over ambitious rent and had refused to take advantage of PACT alternative dispute resolution. At the end of the case it must have been a relief to it that the court still ordered each party to bear their own costs.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Bad Landlord -Tenant relations may justify cheaper refusal of lease renewal

One of the “fault” grounds on which a landlord can resist a tenant’s application for a new business tenancy (section 30(1) (c) of the Landlord & Tenant Act 1954 (“the 1954 Act”)) is that the tenant ought not to be granted a new tenancy because it has committed some other substantial breaches of obligations or for some other reason connected with the tenant’s use or management of the property.

In Horne & Meredith Properties -v- Cox and another (2014) the Court of Appeal recently held that “some other reason” may not need to be breaches of covenant. The two sub grounds stood independently of each other. The reason could be some other behaviour which has led to a breakdown in the landlord-tenant relationship.

In that particular case there had been 16 years of dispute and litigation between the landlord and the tenant, incurring huge costs, concerning two rights of way and six parking spaces at the rear of a shop at Bridgnorth.

The court also rejected the tenant’s claims that those areas were not part of the “tenant’s holding” that it was applying to get a new lease of. The court cited authority including Neville Long – v – Firmenich Boards as authority for the proposition that rights attaching to a tenancy form part of that holding and those rights were what the litigation had historically been about.

This decision has clearly widened the scope for landlords finding fault grounds for resisting new tenancy applications.

Fault grounds carry the advantage for a landlord that, once established, they preclude the tenant getting “disturbance compensation” from the landlord under section 37 of the 1954 Act.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.