Landlords' motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord's ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the "Act") using ground (f) (redevelopment). If the tenant is successful in today's hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically.

The essential facts of the case are reasonably straightforward. F runs a textiles dealership and consultancy business in St James. C runs a luxury hotel, of which F's premises form part. C opposed F's application for a new lease using section 30(1)(f) under the Act, which essentially states that the landlord intends to "demolish or reconstruct" the premises (or a substantial part of them) when the lease ends, and cannot do so without obtaining possession. What makes this case unusual is that C was remarkably candid about its motive for the particular works – they were solely designed to be significant enough to fulfil ground (f) and had no other commercial purpose. If it were not for the need to satisfy ground (f), C would not be doing them. C had offered an undertaking to the court to carry out the works if it won at trial (even though winning would mean F would have to vacate, rendering the works unnecessary). The High Court had to decide whether a landlord in these circumstances can still rely on ground (f). It found that it could – motive was held to be irrelevant under ground (f), as long as intention can be proven.

The question was deemed important enough that F was granted permission to leapfrog its appeal straight to the Supreme Court. F will argue today that the Act has to be interpreted in a way which requires the landlord to demonstrate some sort of commercial purpose or benefit to the works, over and above the need to satisfy ground (f). The meaning of 'benefit' could be very broad, even uneconomic, but it must exist. This is necessary, according to F, if the original purpose of the Act (ie tenant protection) is to be respected. If a landlord is not required to demonstrate any commercial benefit whatsoever to the works, it can put forward any scheme of works it chooses, even if wholly irrational, to strong-arm a tenant into leaving. The only caveat is that it must genuinely intend to do the works if it has to (and be willing to undertake to the court to do so, or give evidence under oath of its fixed intention should the matter go to trial).

In practice, very few landlords spend vast amounts of money unnecessarily. Most, when planning their redevelopment works, will settle on a scheme which both suits their goals for the property and also happens to fulfil ground (f). If that involves an element of 'beefing-up' some of the works to make sure they are disruptive enough under the Act, so be it, but that will not be done for zero benefit. It might lead to a more aesthetically-pleasing layout, additional access features, a more modern ventilation system, or higher ceilings than would otherwise have been the case. A case like the current one will be rare, because the works will usually bring some sort of benefit. But, if F gets its way, where an element of the works demonstrates no independent benefit, the court will be obliged to ignore it for the purposes of considering whether ground (f) is met.

Victory for F could have additional consequences. It will mean that the landlord's motives and reasoning will be scrutinised much more heavily. What if it has multiple motives and how relevant must each one be? What if the landlord cannot prove why, for example, moving a particular vent might be more attractive to prospective tenants? Will expert surveyors have to justify why Method A makes more sense than Method B, even when they appear to achieve the same result? Will the landlord have to take the court through the minutiae of its development appraisal in respect of each element of works? Will tenants have an increased opportunity to get their hands on internal emails concerning the landlord's business decision-making?

Amongst legal professionals who have expressed a view thus far, the majority think that F is unlikely to succeed, but its arguments about the tenant-friendly purpose of the Act could win over the Supreme Court. Until a decision is handed down, developer landlords would be wise to prepare for the worst. This would mean, when planning redevelopment works in conjunction with ground (f), ensuring that every single element of the works has some sort of genuine purpose or benefit, beyond a desire to satisfy ground (f), and ensure that it has the written records of its decision-making to back this up.

Author: Julia Tobbell, Senior Associate, Real Estate Disputes, London

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