The case of S Frances Ltd v The Cavendish Hotel has important implications for commercial landlords who wish to terminate a tenant’s lease.
Terminating a commercial lease
To understand this case, a little bit of context is needed.
Primarily, you need to know that when a commercial lease ends, a tenant can ask for the lease to be renewed. The commercial landlord can oppose this request on various grounds. The most commonly used ground is that the landlord intends to redevelop the property. This falls under section 30(1)(f) of the Landlord and Tenant Act 1954.
Until now, a landlord who wishes to rely on section 30(1)(f) has had to satisfy a two-stage test. Firstly, that the landlord has a genuine intention to carry out the work. Secondly, that the works can be carried out. However, following the case of S Frances Ltd v the Cavendish Hotel, this test has been called into question.
The facts of the case
S Frances Ltd is a retail art gallery, showroom and archive. It rents a commercial property in London, the landlord of which is the Cavendish Hotel. When S Frances Ltd asked to renew the lease after 25 years, the Cavendish Hotel refused. It cited that redevelopment work was to be carried out, during which the tenant could not remain in occupation.
The tenant took the matter to the County Court. The landlord admitted their motivation was to obtain vacant possession of the property. Even so, the judge found in favour of the Cavendish Hotel, saying that regardless of motive, the intention to carry out work was there. This satisfied the two-stage test.
The tenant appealed the decision. The case bypassed the Court of Appeal and was heard in the Supreme Court.
The Supreme Court’s ruling
On 5 December 2018, the Supreme Court overturned the High Court’s decision, finding in favour of the S Frances Ltd. The judge ruled that the landlord’s motive for redevelopment is irrelevant. Nevertheless, it should be the landlord’s intention to carry out work, regardless of whether the tenant leaves voluntarily or not. The judge called this the ‘acid test’.
In this case, the landlord had admitted that the work was of no benefit. In fact, it was not economically feasible. Rather, the only advantage was to regain possession of the property. The judge therefore found in favour of the tenant, as the landlord would not have bothered with the redevelopment, had the tenant left of their own accord.
What does this mean for commercial landlords and tenants?
The effects of this ruling are yet to become apparent. However, the courts may start to question a commercial landlord’s intention to redevelop more thoroughly. As such, a landlord may have to prove that the proposed work is of some value, and is not solely to evict a tenant.
On the flip side, a commercial tenant has additional grounds on which to challenge the non-renewal of a lease. If it can be established that the proposed work is not genuine, the court may award a greater settlement to the tenant.
Commercial property solicitors
For help with commercial landlord and tenant matters, please contact us at Breen Solicitors.