Tom Dobson’s winning entry in the Property Litigation Association’s 2020 essay competition explores the impact of the Supreme Court’s important decision in Franses.
The Supreme Court ruling in S Franses Ltd v Cavendish Hotel (London) Ltd [2018] UKSC 62; [2019] EGLR 4; [2018] PLSCS 212 generated the sort of feverish commentary and analysis normally reserved for the true controversies of our age, like an inflammatory tweet from Donald Trump or the Greggs vegan sausage roll. Quite understandably too – it was a big deal, a significant statement by the highest court in the land as to the nature and purpose of the Landlord and Tenant Act 1954 and how it should function.
The judgment redrew the battle lines for redeveloping landlords and their tenants, causing both parties (and those advising them) to reconsider their approach to ground (f). It has yet to be truly tested in the courts and so it’s too early to analyse the ongoing jurisprudential impact (although many will see the judge’s decision in London Kendal Street No 3 Ltd v Daejan Investments Ltd [2019] EGLR 43; [2019] PLSCS 166 not to consider whether the timing of the works in that case depended on the need to satisfy ground (f) as an opportunity missed).
The really intriguing questions, though, are how the decision is affecting landlords, particularly their strategic approach towards redevelopment cases, and what the wider implications are for the property disputes arena.
The intention of parliament
Much of the analysis published in the immediate aftermath of the judgment focused on Lord Sumption’s “acid test”. This was, after all, the crucial question: would the landlord have done the works had the tenant left voluntarily? However, Lord Sumption’s reasoning in setting his test must be seen in the context of the court’s broader objective, conveyed more explicitly in Lord Briggs’ closing remarks: “I can see no other way of giving effect to what seems to me always to have been the plain intention of parliament…”
Once a piece of legislation is enacted by parliament, it is the role of the courts to ensure that the law is applied as intended – that it doesn’t drift or become distorted over time. A proper examination of the effect the ruling might be having on landlords must therefore consider what it was that parliament was actually trying to achieve.
The Landlord and Tenant Bill was presented by the then home secretary Sir David Maxwell Fyfe. On its second reading in the Commons, on 27 January 1954, Maxwell Fyfe said: “The essence of our scheme can be put this way. We say that if at the end of the tenancy the landlord needs to occupy the premises himself for his own business or to pull them down and rebuild, the tenant must leave and the landlord is perfectly entitled to refuse a new tenancy… Whatever our political views, we must all, surely, be glad to share the belief that what we are doing is to put into a statutory code the practice which a reasonable and good landlord would naturally follow. We encourage the parties to proceed by agreement.”
Later, in the upper house, on 29 June 1954, Lord Silkin said: “The objections which I have put forward… are all designed with the object of carrying out the purpose for which this Bill is introduced, of providing greater equity for a number of people who find themselves handicapped in the negotiations that take place as between themselves and a person who is in a superior position. We are endeavouring to adjust the balance…”
From these extracts, we see the fundamental principles of the 1954 Act emerging: support for reasonable and good landlords with legitimate intentions who need to occupy or redevelop their asset while at the same time creating a level playing field to ensure the protection of good tenants.
It is clear from these debates that parliament never envisaged that a landlord could manipulate and exploit the carefully drafted grounds in section 30 to procure the removal of a good tenant through contrived and otherwise unnecessary works of redevelopment. The Franses decision therefore restored parliament’s intended standards for both landlord conduct and tenants’ statutory protection.
Make your case and make it early
The most important effect for landlords of this affirmation of the Act’s core principles is clarity. Where previously there were grey areas within the structure of ground (f) for landlords without the requisite quality of intention, they now understand that they are bound by Maxwell Fyfe’s “necessity principle” embodied in the judgment by Lord Sumption’s acid test.
Consequently, redeveloping landlords know that they will be held to an even higher evidential burden than previously and cannot manufacture a position or leave anything to chance.
So, in practical terms, Franses is forcing landlords to evaluate and evidence their motivation for redevelopment sooner and in far more depth. Landlords know that any chink in their intention or any hint of conditionality will be seized on by tenants desperate to remain in their premises and lead to challenge, further cost and delay – just as Lord Briggs predicted.
Instead, the higher standard imposed on landlords has encouraged an approach of “case building” in order to discourage tenants from incurring the cost and hassle of running weak “lesser scheme” arguments.
Landlords able to demonstrate, by way of early and extensive pre-action disclosure, that they have secured the appropriate planning consents, have sufficient funds available, have a feasible programme of works with the relevant contracts in place and have a workable future business plan are far more likely to convince their tenants that continued resistance will be nothing but an expensive exercise in futility. As Lord Sumption said in his judgment, tenants will “recognise defeat and leave voluntarily”.
Of course, early disclosure in an attempt to reach agreement is nothing new, but Franses has brought the point into sharp focus in ground (f) cases particularly. Anxious lawyers like me, terrified at the prospect of their landlord clients doing a “Cavendish”, are making it clear that anything less than an unconditional intention supported by strong evidence is simply not worth the fight.
The result, in a world of eye-wateringly expensive legal battles, is that parties in business renewal matters have more incentive than ever to proceed, just as Maxwell Fyfe envisioned, by agreement where possible.
Of course, there will still be those landlords who, despite being on shaky ground in terms of intention, will try it on and seek to bluff their way through in the hope that their tenants roll over. However, in the post-Franses age, they are likely to find tenants more than happy to justify Lord Briggs’ concerns by jumping on any hint of weakness.
It’s early days and maybe I am caught up in a post-Franses afterglow of optimism but, from my experience so far, the judgment has fostered an atmosphere of hyper-caution among landlords, which has led to a far more reasoned and sensible approach to ground (f) disputes.
This can only be a good thing for the continuing function of the 1954 Act and for all parties within the context of the overriding objective – long may it continue. If it does, Lord Briggs needn’t ever have worried.
Contracting out
Ultimately, it may be that the most substantial long-term effect – and perhaps one felt more keenly by our transactional colleagues – is that landlords will just pull the section 38A exclusion ripcord and save everyone the hassle.
There will be those who argue there is little benefit in upholding the will of parliament and creating “greater equity” if the end product is the complete bypassing of the statute’s intention and effect by powerful landlords at the expense of weaker tenants. However, the courts cannot be drawn into these concerns – they can only seek to enforce and uphold what is in front of them. If that creates further policy concerns down the line, that is for parliament to address.
Other grounds?
Looking ahead to what might await landlords down the track, we’re all keeping an eye out for the first case in which Franses is properly examined.
My feeling is that the first major test might come not in the context of redevelopment but through ground (g). Whether Lord Sumption’s acid test can be applied in the same way and the evidential basis on which a landlord could demonstrate an unconditional intention to occupy could make for exciting times ahead.
Just as for every Trump tweet posted there were likely to have been several others which his advisers managed to prevent, for every game-changing judgment there are countless disputes that we see settle through early disclosure and analysis of the points in dispute. As much as we would all love to have our day in the Supreme Court, what we really want is for our clients, landlords and tenants alike, to achieve their objectives.
My view is that Franses, by drawing a line in the sand for the standards of landlord conduct, has upheld the intention of parliament and cleared the way for a smoother and more harmonious approach to ground (f) cases. All change at the Cavendish Hotel? I think so – let’s just hope it’s not #FakeNews.
Tom Dobson is an associate at Farrer & Co
Enter this year’s competition
The Property Litigation Association is now open to entries from its members for this year’s essay prize, which has a modern twist.
The PLA is inviting blogs (not exceeding 500 words) that answer the following question: “The Law Commission is reviewing property legislation. What do you think they should change first, and why?”
If you are a PLA member, entries should be submitted to events@pla.org.uk by the end of March 2021.
