An interesting case is currently making its way through the court system and may have far reaching implications for the landlord/tenant relationship in relation to tenancy renewals; making it more difficult for a landlord to refuse the renewal of a tenancy. Partner Matthew Bailey, said, “The courts are becoming less and less tolerant of people who “game” the system as seen recently in cases of tax avoidance and now in the case of business tenancies”.
Business tenants currently have a qualified security of tenure (via part II of the Landlord and Tenant Act 1954) in that upon the expiry of a tenancy, the tenant can apply to the court for an order forcing the landlord to grant a new tenancy. The court is required to make that order unless the landlord supplies one of seven grounds of opposition; one of which is that the landlord intends to demolish or reconstruct the premises.
In reality, in many cases, apart from the statutory compensation, landlords would not even have to spend the money. They need only supply the tenant with a schedule of works substantial and disruptive enough to be inconsistent with his continued occupation. The tenant would recognise defeat and leave voluntarily.
In the current case, the tenant was not prepared to accept the position and took the matter to court - at which point the landlord gave an undertaking to the court that they would carry out the works if the court ruled that the tenant should vacate the premises. However, all parties accepted that the proposed works had no practical utility and had no purpose other than to get rid of the tenant. It was further accepted that the works would not be undertaken if the tenant were to leave voluntarily.
The entire value of the works proposed by the landlord consisted in getting rid of the tenant and not in any benefit to be derived from the reconstruction itself. The commercial reality was that the landlord was proposing to spend a sum of money to obtain vacant possession.
In essence, the lawyers argued that the landlord was taking advantage of the system and that the acid test should be whether the landlord would intend to do the same works if the tenant left voluntarily.
In the event, the court concluded that the landlord could not oppose the grant of a new business tenancy on the ground that he intended to demolish or reconstruct the premises in question if the works that he said that he intended to carry out had no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.
The story is not over yet because the landlord was given leave to appeal this decision to the supreme court.
If you would like assistance in relation to a commercial property transaction, call Matthew for further information.
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