The very purpose of the security of tenure provisions of the Landlord and Tenant Act 1954 is to provide business tenants with certainty that their rights of occupation will not automatically terminate at contractual lease expiry if they wish to remain. However, the 1954 Act has always recognised the need for landlords to be able to redevelop and regenerate their buildings.
The 1954 Act provides ground (f) as one of the bases upon which a landlord may oppose the renewal of a business tenancy. The wording of ground (f) is as follows:
“the landlord intends to demolish or reconstruct 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 that he could not reasonably do so without obtaining possession of the holding”
It has been long established that in order to succeed on ground (f), the landlord must be able to persuade the Court that it has the requisite intention to undertake the redevelopment works. A landlord must demonstrate both a firm and settled subjective intention and also that objectively there is a reasonable prospect of being able to actually do the works.
Prior to the Supreme Court’s decision in Franses v Cavendish Hotels [2018] (whilst clearly a potential reputational risk) it was widely thought possible that a landlord could propose works specifically to prevent a protected business tenant’s renewal. A landlord might contrive works which were otherwise valueless, so long as they convinced the Court that they would indeed carry out such works (by giving an undertaking). A landlord’s motive for putting forward any particular scheme of works was not relevant.
Franses has established that where redevelopment works have been designed specifically to satisfy ground (f) and so are works that the landlord would not otherwise do if the tenant was leaving voluntarily then, rather than a firm and settled intention, the landlord’s intention would be conditional. Ground (f) would not therefore be satisfied. The Supreme Court confirmed that whilst a landlord’s motive for proposing works is not in itself relevant to ground (f), motive can provide useful evidence of the nature of the landlord’s intention.
The Electronic Communications Code: Transmitting Franses
Franses concerned retail premises used as a high-end textile dealership in the St James’s area of London. What do such premises and telecommunications masts in rural Hampshire have in common?
In EE Ltd and Hutchison 3G UK Ltd v Meyrick [2019], the Upper Tribunal (Lands Chamber) considered intention to redevelop under paragraph 21(5) of the Electronic Communications Code 2017. The landowner did not wish to grant the mobile phone operators rights under the 2017 Code and devised its own plan to erect taller masts for faster broadband services for occupiers of its estate.
The Upper Tribunal utilised the subjective and objective tests for intention set out in Franses and earlier 1954 Act cases, given the similarities between paragraph 21(5) and ground (f). In applying the decision in Franses, the Upper Tribunal determined that the landowner failed to satisfy the subjective element of its intention to redevelop on the basis that the plans that had been put forward were evidently a tactical approach taken with a view to thwarting the operators’ application for Code rights. The land owner’s scheme would have been unprofitable and they presented insufficient evidence that faster broadband was indeed needed.
Both landowners and operators should be sure to factor in Franses when a proposed redevelopment will affect telecoms equipment.
The future for Franses? Timing
Whilst the Supreme Court has sought to protect business tenants from works specifically crafted to oust them, there is still uncertainty over where the line will fall between works which are obviously contrived and those where the landlord does have perfectly legitimate intentions to redevelop but has decided to also undertake additional works at the same time so as to improve their ground (f) position. Timing may also prove a stumbling point for developers, depending upon how judges dealing with opposed lease renewals interpret Franses in practice.
Earlier this year, the modified test for intention as set out in Franses came before the County Court for the first time in London Kendal Street No3 Limited v Daejan Investments Limited [2019]. The case involved works to a large basement at Park West near Edgware Road in London, which also involved turning a serviced office unit at ground floor level into a new entrance to the basement. The tenant was unsuccessful at first instance but has been granted permission to appeal the County Court’s decision.
It is widely understood that the tenant’s appeal will focus on the County Court’s failure to take into account the impact of Franses on the timing of the landlord’s works rather than simply limiting the application of Franses to the nature of the works. The tenant will be arguing that its landlord’s intention to do the works does not satisfy ground (f) because it is conditional as evidenced by the landlord having appeared to bring forward the works to the service office unit so as to coincide with the contractual lease expiry.
How the Courts approach conditional intention and timing post-Franses could have a very significant impact upon developing complex brownfield sites where there are subsisting 1954 Act tenancies. Larger developments are often predicated on the ability to piece together multiple parcels to create a wider site for regeneration. If in future the Courts confirm that Franses applies equally to timing as it does to the nature of the works, landlords will need to exercise great care in planning out their developments so as to avoid accusations that phases have been accelerated simply to obtain vacant possession from tenants with 1954 Act protection.