‘What one does is what counts. Not what one had the intention to do’ – Pablo Picasso

In their recent decision in the case of S Franses Ltd v Cavendish Hotel (London) Limited [2018] UKSC, the Supreme Court has clarified the operation and ambit of one of the key provisions of the Landlord and Tenant Act 1954.

The facts of the case

The case involved retail premises on the ground and basement floors of 80 St. Jermyn Street in St. James’ in London, operated by S Frances Ltd under a lease from Cavendish (Hotel) London Limited the head landlord of the building. The rest of the building is owned and operated by the landlord as a hotel

The case concerned a request for the grant of a new tenancy pursuant to the 1954 Act made by the tenant which the Landlord opposed on the ground set out in s.30(1)(f) of the Landlord and Tenant Act 1954.

s.30(1)(f)

‘that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding

As evidence that it would meet the requirement of ground (f), the landlord submitted a scheme which involved creating two new retail units incorporating the premises occupied by the Tenant and part of the hotel. The scheme included extensive internal works, many of which were described by Lord Sumption, in his leading judgement as ‘objectively, useless’. The cost of the work (ex VAT) was £776,707 and the statutory compensation, payable to the tenant, if the court agreed not to order a new tenancy, a further £324,000.

It was impossible to make use of any of those works without planning permission for change of use, which the Landlord did not intend to seek. However, as is usual in ground (f) applications, the landlord supported its evidence of intention with a written undertaking to carry out the works if a new tenancy was refused.

The striking admission in the landlord’s evidence was that the sole purpose of the works was to obtain vacant possession by satisfying ground (f). The landlord was prepared to run the risk that the premises would be unuseable once the proposed scheme was completed if that meant that vacant possession would thereby be obtained  In such circumstances the landlord’s intention was then to carry out an alternative scheme which would add 28 more bedrooms to the Hotel.

The trial judge found that the landlord genuinely intended to carry out the works, if they were necessary to get rid of the tenant but did not so intend if the tenant agreed to vacate or if it were possible to carry out the works without obtaining vacant possession. That was sufficient intention to satisfy the requirements of ground (f). The tenant’s application for a new lease was not, therefore, granted. That decision was appealed by the tenant.

The decision of the Supreme Court

In the Supreme Court, Lord Sumption gave the leading judgement the key points of which were :

• The touchstone of ground (f) is a firm and settled intention to carry out the works. The landlord’s purpose or motive are irrelevant save as material for testing whether such a firm and settled intention exists.
• The landlord’s intention to carry out the works could not be conditional on whether or not the tenant chooses to assert his claim for a new tenancy and to persist in that claim. The acid test was whether the landlord would intend to do the same works if the tenant left voluntarily. On the facts found by the trial judge in this case, the landlord did not intend to carry out the works if the tenant gave up possession. A conditional intention such as this was not a fixed and settled intention that ground (f) requires.

As a consequence the landlord had not met the conditions of ground (f) and a new tenancy of the premises was ordered to be granted.

Commentary

As Lord Sumption commented in his judgement (p7) a strategy such as that adopted by the landlord in S Frances depends on the value of vacant possession exceeding the cost of the ‘useless work’. As mentioned above, it is common practice in cases involving reliance on ground (f) for the landlord to support the evidence of its intention by giving a written undertaking to court to carry out the proposed works if the new tenancy is refused. If the landlord proves its intention then it has no alternative but to complete those works.

This absurdity occurs little, if at all, in practice. As observed by Lord Sumption (p17)), the commercial reality is that a landlord will normally be able to obtain vacant possession by ‘supplying the tenant with a schedule of works substantial and disruptive enough to be inconsistent with his continued occupation’. In such circumstances the tenant will, in most cases, leave voluntarily, obviating the need for the landlord to give the required undertaking or to carry out the, by now, redundant works.

The landlord in this case had clearly admitted that its intention to carry out the proposed scheme was conditional on the tenant not leaving or it being decided that the works could be carried out by exercise of a right of re-entry. In previous decisions of the Court of Appeal it had been decided that such a condition would be satisfied at the time of trial, as in this case, because it would be apparent that the tenant would not leave voluntarily nor could the works be undertaken by way of a right of re-entry. Lord Sumption (and his fellow judges) disagreed with that concept of conditionality. Only if the landlord intended to carry out the proposed scheme, irrespective of the tenant’s intentions, would his intention be fixed and settled as ground (f) requires.

Ground (f) is probably the most used ground of opposition to a request by a tenant under the 1954 Act for a new tenancy. On a narrow interpretation of the facts, the decision of the Supreme Court would seem unlikely to affect the vast majority of cases where a landlord seeks to rely on ground (f). The extent to which the economic benefit of getting vacant possession needs to be in excess of carrying out an ‘unwanted’ scheme is probably so great as to confine its application to only leases of substantial units with redevelopment potential.

On a wider interpretation the decision may persuade tenants in receipt of ground (f) opposition to test the true intention of the proposed scheme presented to them more than they might have been inclined to previously. Unfortunately for tenants and their advisers, the point at which the landlord’s intention is to be tested remains the time of trial of the issue. In many cases the cost of taking the issue to trial will either be beyond the pocket of the tenant or just not economically viable.

It was submitted in the hearing before the Supreme Court (p21) that landlords will, following the decision, ‘disguise their intentions more effectively that [the landlord in that decision]’. The decision shows what a dangerous tactic such concealment might be but, outside of the courts, landlords might sensibly expect ground (f) schemes to be more closely scrutinised by tenants and their advisers than might have been the case before.