9 October 2014
Under the provisions of the Landlord and Tenant Act 1954 a tenant has the right to renew its business lease at the expiry of the contractual term.
A landlord can seek to oppose the grant of a new renewal lease using the grounds laid out in s30(1) of the 1954 Act, which includes cases where there is disrepair (ground (a)), delay in paying rent (ground (b)) and substantial breaches of tenancy obligations (ground (c)).
In this case, the tenant had a lease of a dwelling house, shop and premises.
The tenant was required under the lease to:
- Allow the landlord access to the property to examine its condition; and
- Use the property for the purposes of any retail trade within use classes A1 and A3.
It was not obvious what business the tenant was using the property for, but it was not open for retail trade within classes A1 or A3.
When the lease was up for renewal, the landlord opposed the tenant's request for a new tenancy on grounds (a), (b) and (c) noted above.
The judge at first instance concluded that ground (b) was not made out, but held that grounds (a) and (c) were satisfied on the following basis.
Disrepair - ground (a) - There was creeper growth at the rear of the property. The tenant's failure to control this plant growth was a breach of an implied covenant to use the premises in a tenant-like manner and demonstrated disrepair for the purposes of ground (a).
Substantial breaches of tenancy obligations - ground (c) - the tenant thwarted the landlord's attempts to access the premises. She also failed to open a business within one of the specified use classes in the lease. The judge found that these were substantial breaches of the access and user covenants in the lease.
The judge made the appropriate order for the termination of the current tenancy without the grant of a new lease. The tenant appealed.
The Court of Appeal gave some general guidance on the court's approach to grounds (a) and (c).
In relation to ground (a), the court has to ask itself whether in view of the state of repair of the property, brought about by the tenant's breach of its obligation to repair and maintain the property, the tenant ought not to be granted a new tenancy. This involves the court focusing exclusively on the state of repair and asking itself whether, looking forward to the hypothetical new term, the proper interests of the landlord would be prejudiced in continuing in a landlord/tenant relationship with this particular tenant.
Under ground (c), however, the approach is broader. The court, when considering whether a new tenancy ought not to be granted, is entitled to focus not merely on other substantial breaches but also, or alternatively, on any other reason connected with the tenant's use or management of the property.
Finally, the court made it clear that a landlord need not prove that the relevant breach adversely affects the rental income or value of the reversion in order to show that his interests are prejudiced.
The Court of Appeal agreed with the tenant and allowed the appeal in relation to ground (a). Under the lease, the landlord had an express obligation to keep the structure of the building in repair. The removal of the creeper from the structure of the building was not therefore the tenant's responsibility, but the landlord's, and so there was no neglect to repair by the tenant for the purposes of ground (a). In addition, the judge had been wrong to think that the failure to remove the creeper, even if it were a breach of a tenant's repairing obligation, was a substantial breach when the sum involved in carrying out the work was said to be only £350.
However, the Court of Appeal did agree with the findings of the first instance judge in relation to ground (c) and therefore held that a new tenancy should not be granted.
Cases where the landlord is able to make out that a tenant is a "bad tenant", and therefore ought not to get a new lease have been rare.
However, this is the second significant case this year that has discussed the use of ground (c) (see the case of Horne and Meredith Properties Ltd v Cox  EWCA Civ 423), which might suggest a growing tendency for landlords to explore this type of opposition.
Although the facts of this case are unusual, the case does provide some helpful clarification on what the courts will look at when considering objections under grounds (a) and (c).
Carly Williams is an associate in the Real Estate Disputes Group at Berwin Leighton Paisner LLP