David Nicholls and David Gregory consider the impact of a recent case on the limits of section 30(1)(f).
Question
I am a director of a company which leases high-street commercial premises in England. The premises comprise a shop on the ground floor, a storage area in the basement, and a floor above which could be used for storage, but which is surplus to our requirements and unoccupied. The landlord recently served a section 25 notice on the company to terminate the lease and oppose the grant of a new lease because it wishes to redevelop the premises. The proposed works will affect only a small part of the premises occupied by the company. Will the court grant the company a new lease and, if so, what will be the extent of the demise in the new tenancy?
Answer
If, at the time of trial, the company only occupies the part of the premises unaffected by the landlord’s proposed works, the landlord’s claim should fail. Then, provided the landlord elects to require the company to take a lease of the entire premises (including the parts the company does not occupy), the company can expand its operations back into the remainder of the original demised premises prior to resolution of the terms of the new tenancy. In this way, the company can defeat the landlord’s claim and obtain a lease of the entire premises.
Explanation
This issue was recently considered by Central London County Court in Sainsbury’s Supermarkets Ltd v Medley Assets Ltd (Case no H00MK414). In that case, the landlord, Medley Assets Ltd, opposed the grant of a new lease to its tenant, Sainsbury’s, relying on ground (f) in section 30(1) of the Landlord and Tenant Act 1954. The landlord wanted to redevelop the premises and claimed it could not reasonably do so without obtaining possession.
Is the tenant entitled to a new lease?
As a starting point, a tenant will only be entitled to a new lease if, at the date of expiry of the contractual term of the existing lease, it satisfies the conditions in section 23 of the 1954 Act. Broadly, the premises must be occupied by the tenant for the purposes of its business. The tenant is only entitled to a new lease of the “holding”. Section 23(3) of the Act makes clear that the holding is only the part of the premises that the tenant occupies for business purposes.
What is the extent of “the holding”?
In Sainsbury’s there was a dispute about the definition of “the holding”. The tenant contended that “the holding” referred only to the part of the premises occupied by the tenant for its business (section 23(3)) and therefore the landlord’s ground of opposition should fail because Sainsbury’s did not occupy the parts of the premises that were principally affected by the majority of the proposed works.
In contrast, the landlord contended that where the landlord has elected that the new lease should be granted of the whole of the demised premises, then the “holding” was the whole of the demised premises (section 32(2)). The landlord sought to rely on this definition of “the holding” in order to argue that its redevelopment works would affect those parts of the premises which would be subject of the new lease that the tenant would be required to take.
The court considered that this was a matter of statutory interpretation and agreed with the tenant in light of the wording of the statute and the practical consequences of the rival interpretations.
How did this assist the tenant?
The effect of this decision is that when the court is considering ground (f) of section 30, the court only has to consider the landlord’s proposed works insofar as they relate to the part of the premises occupied by the tenant. In Sainsbury’s, this meant that only the relatively minor works to the ground floor were relevant. The basement was not occupied by the tenant and therefore any works to the basement were not relevant. The court held that the ground-floor works were insufficient to satisfy ground (f).
An added complication was that the landlord intended to exercise its power of election under section 32(2). This enables a landlord to require its tenant to take a lease of the whole property, even if the tenant is only in actual occupation of part, thus ensuring that landlords are not left with unlettable parts of their property that the tenant does not want. In this way, the new lease would relate to the whole of the premises.
Although the landlord’s claim failed because the landlord could not demonstrate that it had a genuine and settled intention to carry out the works, the case is a good illustration of how a tenant in occupation of part of the premises might be able to acquire a new lease of the whole of the premises.
David Nicholls is a barrister at Landmark Chambers and David Gregory is an associate solicitor at Charles Russell Speechlys LLP
