Terminating a business tenancy using the redevelopment ground – Part 2: The nature of the works

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

In our first article on this topic, we considered, in general terms, the first of the two elements that must be shown in order to recover possession of a business tenancy using the redevelopment ground, set out in section 30(1)(f) ("ground (f)") of the Landlord and Tenant Act 1954 (the "1954 Act"):  the landlord's intention to undertake the works.  In this article, we consider the second element: the nature of the works.

As a reminder, 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". 

There are, in effect, therefore, five categories of works that fall within ground (f).  Those are:

(1)          that the landlord intends to demolish the whole of the premises comprised in the holding;

(2)          that the landlord intends to demolish a substantial part of the premises comprised in the holding;

(3)          that the landlord intends to reconstruct the whole of the premises comprised in the holding;

(4)          that the landlord intends to reconstruct a substantial part of the premises comprised in the holding; and

(5)          that the landlord intends to carry out substantial works of construction on the holding.

In simple terms, the greater the works, the more likely you are to succeed on the ground and, in many large scale developments, where the intention is to construct something entirely different on the site, there is little question that the work will be adequate.  Where the plans are more akin to a large scale refurbishment, with the main structure of the building remaining intact, more consideration must be given to the nature of the works and whether they are adequate.

Previous case law provides some general guidance.  For example, there is no need for load-bearing structures to be demolished but the more that is done physically to change the demised premises the better.  Where the demise is an internal demise (i.e. a demise of the inner skin of the premises), an intention to do works the effect of which is essentially to remove that skin has been held to be adequate.  Demolition is what it suggests although the reference to this applying to at least "a substantial part of the premises" is important.  Reconstruction usually involves demolition of part and then reconstruction, most usually in a different form.  

Demolition of walls and changes to any structural part of the premises may assist, as may interference with the floor slab or floorboards:  for example, if there are changes to the heights of the ceiling or floors or the insertion of a staircase or escalator.  Ground (f) is not intended to enable the landlord simply to refurbish the existing premises without some physical demolition or reconstruction or construction.  Simply repainting the premises or (generally) removing internal stud or demountable partitioning, or carrying out substantial works to common parts that are under the landlord's control will not be enough.  Similarly, if the lease permits the works to take place or the works are to repair dilapidations, they are unlikely to be adequate.  The chances of success are increased if the premises that were demised do not, as such, continue to exist once the work has been completed, for example, because the footprint is different or the floor to ceiling height is different.  It is also important to remember that, where a building is occupied under a number of separate leases, adequate works will need to take place to the demised premises under each lease in order for possession of the whole to be granted.

Conclusion

Ground (f) is a complex ground.  There is an enormous body of case law, much of which has turned on the specific facts in each case, and some of which is, rather unhelpfully, contradictory.  Where works are borderline, there is a considerable amount of subjectivity as to whether the works satisfy the ground and, if the trial judge finds against the landlord, an appeal is often extremely difficult to sustain. 

Whilst we can summarise the general elements of the ground, it is always important to obtain specific advice on the scheme at an early stage.  In borderline cases, there may be small changes that can be made which can significantly improve the chances of successfully obtaining the termination of the lease.

In any case where you intend to use ground (f), it is important to remember that statutory compensation will generally be payable to the tenant whose lease is terminated.  If the tenant has occupied the premises for 14 years or more, compensation will be a sum equal to twice the rateable value of the demised premises; if the tenant has occupied for a shorter time, the statutory compensation will be once the rateable value of the premises.  It is also worth considering whether you would also be in a position to use ground (d) and offer suitable alternative accommodation to the affected tenants.  If successful, this ground would avoid payment of statutory compensation and may have the additional benefit of retaining the tenant and letting space in another building.

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