Terminating a business tenancy using the redevelopment ground – Part 1: Showing the landlord's intention to redevelop

Author: Frances Edwards, Senior Associate, Real Estate Dispute Resolution, London

One of the most common questions we are asked by developers at the land assembly stage of their scheme is what they need to show in order to be certain of successfully terminating a lease that has the protection of the Landlord and Tenant Act 1954 ("1954 Act").  It is not always an easy question to answer as each development will have different issues.   However, some general pointers can be given.

The "redevelopment ground" of opposition to the grant of a new lease is set out in section 30(1)(f) of the 1954 Act and is often just referred to as "ground (f)" and the best starting point when considering whether the nature and extent of the work will enable possession to be recovered is the wording of the statute.  Ground (f) provides that the landlord may oppose an application for renewal of a lease on the ground "that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprising 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 is clear from the wording, it is necessary to consider both the landlord's intention and also the nature of the works.  In this first article, we look at the landlord's intention.  Issues surrounding the nature of the works will be considered in the second article.

Landlord's intention

The intention to do the relevant works to the premises must be shown to be held by the landlord at the date of trial.  It is, therefore, not necessary for the final decision to redevelop to have been made by the date on which a hostile notice pursuant to section 25 of the 1954 Act ("section 25 notice")  or the counter-notice to a request pursuant to section 26 of the 1954 Act ("section 26 request") citing ground (f) is served.  However, it is important that, if after serving a hostile section 25 notice or counternotice to a section 26 request, the landlord changes its mind about its intention, it notifies the tenant of that change of mind to ensure that there cannot be any suggestion that there has been a misrepresentation of the facts – the court has the power to order that the landlord pay compensation in addition to the standard statutory compensation if the landlord is found to have misrepresented the position or concealed material facts and either the tenant leaves the holding without making an application for a new tenancy or the court grants the landlord's request for termination of the lease on the basis of the misrepresentation.   

The most widely cited test as to whether the landlord has the requisite intention comes from the case of Cunliffe v Goodman [1950] 2 KB 237, where the court held that the test was whether the landlord's project had moved "out of the zone of contemplation … into the valley of decision".  This is a subjective assessment of the state of mind of the landlord.  Also relevant is an objective test as to the realistic prospect of implementing the intention.  This requires the court to consider whether it is practicable for the landlord to carry out the works that are intended.  Intention may not be proved if there remain too many hurdles to overcome or too little control of events and evidence of the practicability of the scheme will be essential.

Although evidence of intention to develop is not required until the date of the hearing, in purely practical terms, it is preferable to provide the tenant with as much evidence as possible as early as possible in the hope the tenant accepts the position and agrees to leave without the necessity of either party incurring litigation costs.  Serving this evidence on the tenant may deter them from making their own applications for the grant of a new lease as forcibly.  It is obviously beneficial for the plans to be as advanced as possible to show intention but, for example, if planning permission is required, there is no need for the planning permission actually to have been obtained by the date of trial so long as you are able to show the court that, on the balance of probabilities, there is a reasonable prospect of obtaining any necessary planning permission within a relatively short period of time of the trial taking place.

Evidence of intention will generally be given by way of a witness statement from the person responsible for management of the property.  Further evidence of intention that is usually beneficial includes:

(a)          any necessary board approvals to be in place;

(b)          evidence of the funding or the allocation of monies to the project;

(c)          a contract for works either to be in place or to have gone out to tender so that the court can see that selection of contractors would be able to be carried out within a reasonable time after possession is obtained;

(d)          any professional advisors to have been appointed;

(e)          drawings, plans, a programme of works, costs etc. are to be drawn up.

In certain circumstances, it can be useful for the landlord to be in a position to give an undertaking to the court to carry out the proposed works.

In accordance with the statute, the landlord's intention must be one that he intends to implement "on the termination of the current tenancy".  A short period is permitted after possession is recovered but this is usually measured in a short number of weeks rather than any number of months.  This time is purely permitted to carry out any necessary work, for example surveying the premises and finalising any detailed plans for which greater access is required to the premises than can be achieved when a tenant is in occupation.

The 1954 Act does provide some assistance to landlords who are not quite able to show that they intend to commence the redevelopment within that short period.  Where the landlord has failed to establish the ground to the satisfaction of the court but the court is satisfied that, if the date specified in the section 25 notice or the section 26 request had been up to a year after the actual date, the landlord would have been able to establish the ground, the court may, pursuant to section 31(2) of the 1954 Act make a declaration that the ground would have been satisfied by that different date.  The court will not order the grant of a new lease but the tenant may apply for the existing lease to be extended to the date specified by the court.  If the tenant does not request the extension, the lease will terminate, as usual, three months after the final determination of the claim.  

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