Comment from Tim Rayner, Joint Head of Property Litigation at Irwin Mitchell
In possibly the most significant (and certainly most eagerly-awaited) judgment for the property industry this year, the Supreme Court has handed down Judgment in S Franses Limited v The Cavendish Hotel (London) Limited.
This case deals with a landlord’s (Cavendish Hotel) right to oppose the grant of a new tenancy to a tenant (S Franses) under the Landlord and Tenant Act 1954 and in particular the motive and conditionality of the landlord’s intention to undertake redevelopment works under section 30(1) ground (f) of the Act.
In a surprise to many the Supreme Court gave Judgment in the tenant’s favour.
It was common ground that the landlord’s proposed works had no practical utility and their sole purpose was to obtain vacant possession.
The main thrust of the arguments on which the Supreme Court was asked to decide was whether such a contrived intention was what Parliament had originally intended and therefore whether the ground of opposition should fail, or in fact whether motive in that context is irrelevant.
On that point, at paragraph 16, Lord Sumption accepted that “motive is irrelevant save as being material for testing whether such a firm and settled intention exists”. In other words, the point that most commentators (and probably the advocates as well) thought was the main issue before the court arguably went in favour of the landlord.
However this is not the end of the story. As Lord Sumption put it, “these considerations [do not] avail the landlord on the facts of the present case”.
The Supreme Court in fact found in favour of the tenant and its Judgment turned on the nature of the conditionality of the landlord’s intention, as opposed to its mere existence.
The “acid test” (as Lord Sumption described it) when assessing intention is whether the landlord would intend to do the same works if the tenant left voluntarily. In this case, the landlord did not intend to carry out the works if the court were persuaded that the works could reasonably be carried out while it remained in possession. Lord Sumption found that “a conditional intention of this kind is not the fixed and settled intention that ground (f) requires.” He also went on to say, quite usefully, that “although the statutory test (in section 30(1) ground (f)) does not depend on the objective utility of the works, a lack of utility may be evidence from which the conditional character of the landlord’s intention may be inferred”.
Many commentators were concerned about the additional burden on landlords should the matter go in favour of the tenant. Clearly alive to this issue, Lord Briggs conceded that applying Lord Sumption’s “acid test” mentioned above “may introduce an element of complexity and expense into proceedings in the County Court”. However, he went onto say that he could “see no other way of giving effect to…the plain intention of Parliament, that a tenant’s statutory right to renew…should not be circumvented by the proposed works which, viewed as a whole would not have been undertaken by the landlord if the tenant had left voluntarily”.
Expert Opinion“There is no doubt that this is a tenant-friendly decision. However the full implications for landlords will not be known until its precedent filters into County Court decisions. It is my view that there may in fact be limited circumstances where a landlord is so open about its contrived scheme or where there is admitted to be no wider commercial benefit of the qualifying works. Therefore the additional complexity and expense alluded to by Lord Briggs may not be as widespread as some commentators might lead us to believe.”
Tim Rayner - Partner