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Date: 29 October 2009
TERMINATION OF BUSINESS TENANCIES - GROUND (F), A CHANGE OF HEART
It is familiar territory to real estate professionals and experienced landlords and tenants that generally at the end of the contractual term of a lease of premises used for commercial purposes, the tenant has a statutory right to a new lease unless the landlord can show one of the grounds for termination specified in the Landlord and Tenant Act 1954.
There are of course procedures for excluding this right of statutory renewal at the time of grant, and in the case of agreements to surrender such leases where the right to renew already applies.
Let us assume we are dealing with a case where the tenancy is protected under the Act, the tenant wishes to take a new lease but the landlord does not wish to permit the renewal. To decline to renew the landlord must be able to demonstrate one of the following grounds:
Redevelopment is common place (and more so before the current financial challenges of the property market) and hence a refusal to renew on ground (f) is frequently encountered.
In the recent case of Inclusive Technology v Williamson 2009 the Court of Appeal has raised an issue of risk for a landlord who changes its intentions to redevelop, whereby compensation for damage or loss became due to the tenant on the grounds of misrepresentation or concealment of material facts.
The facts:
Inclusive Technology were the tenants of two business park units under a lease expiring 31 January 2007.
In June 2006 the landlord Mr Williamson had a bona fide intention to refurbish the two units concerned and he had been advised that the work could not be carried out whilst the tenant was in occupation. Accordingly he served a Section 25 Notice upon Inclusive Technology terminating the lease with effect from the 31 January 2007 and stating that he would oppose the grant of new a tenancy under ground f (the ground for demolition and reconstruction). A letter accompanied the notice stating that it was necessary to obtain possession to carry out the works.
By September 06 Mr Williamson had decided to hold off from implementing the works but at that stage still intended to carry them out at a later date. However by October 06 he had instructed to agents to market the premises for re-letting in their existing state. By that stage he no longer intended to carry out the work within a reasonable period at the end of the lease and he knew he could no longer oppose the grant of a new lease relying on ground f.
He did not inform Inclusive Technology of his change of mind.
Accordingly Inclusive Technology believed it had no option but to the leave the premises by 31 January 2007. It signed a new lease of other premises and actually moved out in December 06.
Subsequently Inclusive Technology became aware that no works were being implemented to its former premises and therefore brought proceedings against Mr Williamson under Section 37a of the Landlord and Tenant Act 1954 which entitles a business tenant to compensation for damage or loss as a result of leaving its premises on the grounds of misrepresentation or concealment of material facts. They claimed £90,000 to reflect the difference between the rent for the new property and the market rent for the former premises in their unfurnished state.
The Court of Appeal found for Inclusive Technology, awarding compensation of only £48,000 on the basis that the assumed market rent would have been higher than Inclusive Technology had stated. The Court considered that either concealment or misrepresentation by Williamson had lead Inclusive Technology to vacate its former premises.
In this case the tenant did not actually apply to Court to test the landlord’s intentions under the notice and hence the inclusion of ground f within the notice was not in itself actionable. Under the case of Betty’s Cafes Limited –v- Phillips Furnishing Stores Limited 1959 it is established law that for a landlord to rely on ground f it must be able to demonstrate a firm intention to do the works at the time of the trial. If the tenant does not apply to the Court to protect its position and test the landlord’s intentions as at that point then a right of action based simply on ground (f) does not arise.
On the facts of this case the landlord’s liability arose not from the notice to terminate but the accompanying letter which constituted a representation and in the context of Mr Williamson’s previous warnings that the work would require vacant possession, when Mr Williams’ intention changed so that the representation became false, he had a duty to disclose the fact to Inclusive Technology, which he clearly failed to do.
The moral of the tale- if a landlord changes its mind about its intentions then clearly it should notify the tenant with a view to either agreeing a new tenancy with the tenant for a limited period or to agree to the tenant holding over after the expiration date of the current lease, pending the works being eventually implemented.
This is a complex area of law and Buller Jeffries’ commercial real estate team are expert in this field and ready to assist you whether as landlord or tenant upon these issues.
Contact Clive Vernon, Roger Williams or Richard Davis
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