S Franses Ltd v The Cavendish Hotel (London) Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Hale,Lord Kitchin,Lady Black,Lord Sumption,Lord Briggs |
| Judgment Date | 05 December 2018 |
| Neutral Citation | [2018] UKSC 62 |
| Court | Supreme Court |
[2018] UKSC 62
Lady Hale, President
Lord Sumption
Lady Black
Lord Briggs
Lord Kitchin
Appellant
Joanne Wicks QC
Benjamin Faulkner
(Instructed by David Cooper & Co)
Respondent
Guy Fetherstonhaugh QC
Nicholas Taggart
(Instructed by Maples Teesdale LLP)
Heard on 17 October 2018
(with whom Lady Hale, Lady BlackandLord Kitchinagree)
Part II of the Landlord and Tenant Act 1954 confers a qualified security of tenure on business tenants. A tenant in occupation of the premises under a tenancy for a term of years certain may stay over and request a new tenancy beginning upon its expiry, unless before the tenancy was granted the landlord had served a notice informing the tenant of his rights and the parties had then agreed to exclude the relevant provisions of the Act. The tenant may apply to the court under section 24(1) of the Act for an order granting one. The court is required to make that order unless the landlord makes out one of seven grounds of opposition specified in section 30(1), in which case it is required to refuse one. One of those grounds is that the landlord intends to demolish or reconstruct the premises. The question which arises on this appeal is whether it is open to the landlord to oppose the grant of a new tenancy if the works which he says that he intends to carry out have no purpose other than to get rid of the tenant and would not be undertaken if the tenant were to leave voluntarily.
The directly relevant provisions of the Act are section 30(1)(f) and section 31A. Section 30(1)(f) provides that the landlord may oppose the grant of a new tenancy on the ground
“that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding …”
Section 31A (which was inserted by the Law of Property Act 1969, section 7(1)), provides:
“(1) Where the landlord opposes an application under section 24(1) of this Act on the ground specified in paragraph (f) of section 30(1) of this Act … the court shall not hold that the landlord could not reasonably carry out the demolition, reconstruction or work of construction intended without obtaining possession of the holding if -
(a) the tenant agrees to the inclusion in the terms of the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended and, given that access and those facilities, the landlord could reasonably carry out the work without obtaining possession of the holding and without interfering to a substantial extent or for a substantial time with the use of the holding for the purposes of the business carried on by the tenant; or
(b) the tenant is willing to accept a tenancy of an economically separable part of the holding and either paragraph (a) of this section is satisfied with respect to that part or possession of the remainder of the holding would be reasonably sufficient to enable the landlord to carry out the intended work.”
Section 37 provides that where a court is precluded from ordering the grant of a new tenancy on certain grounds, including this one, the tenant is entitled to compensation.
The premises in issue on this appeal comprise the ground floor and basement of 80, Jermyn Street in the St James's area of London. The freeholders of the building are the South London and Maudsley NHS Foundation Trust and the landlord is the head lessee. The tenant is a textile dealership and consultancy, specialising in antique tapestries and textiles. It occupies the ground floor and basement under an underlease for a term of 25 years from 2 January 1989, and uses them as a retail art gallery, showroom and archive. The rest of the building is occupied and managed by the landlord as a hotel. The local planning authority, Westminster City Council, has designated the St James's area as a “special policy area”, in which it seeks to protect and promote certain uses, namely private members clubs, art galleries and niche retail outlets. Pursuant to that policy, the premises occupied by the tenant are recognised as having a specific, sui generis, use for planning purposes, namely “mixed use, comprising retail, depository, research centre, archive library, publishing and conservation for historic tapestries, textile art and carpets.” Any material change of use would require planning consent.
On 16 March 2015, the tenant served statutory notices requesting the grant of a new tenancy. On 15 May 2015, the landlord served a statutory counter-notice opposing the grant of a new tenancy under section 30(1)(f) of the Act. On 8 June 2015, the tenant applied in the Central London County Court for an order. A preliminary issue was directed whether that ground of opposition was made out.
The facts are unusually stark. In its defence, the landlord put forward several successive schemes said to represent the works which it intended to carry out. These works were designed (i) to be sufficiently “substantial” to qualify under ground (f); (ii) to be too substantial and disruptive to be carried out by exercising a right of entry while the tenant remained in possession; and (iii) to avoid the need for planning permission, which would have enabled the tenant to argue that its likely refusal would make the project ineffective. In the words of the judge (HHJ Saggerson), the proposed scheme of works was “designed with the material intention of undertaking works that would lead to the eviction of the tenant regardless of the works' commercial or practical utility and irrespective of the expense.” The scheme went through three iterations. The first scheme involved incorporating the former bar of the hotel into the ground floor of the premises. This scheme was shortly abandoned and replaced by a new scheme which involved creating two new retail units incorporating the premises occupied by the tenant and part of the hotel, and carrying out certain associated external works including the installation of a new street door to allow access to one of the units. The planning officers of the local authority recommended this scheme for refusal, whereupon it was withdrawn and replaced by a third scheme, which was the one eventually relied upon at the trial of the preliminary issue. The third scheme was based on the second, with two significant differences. First, it omitted the external works, which would have required planning permission. For this reason, the internal wall dividing the two proposed retail units stopped two metres short of the shopfront at ground floor level; and there was no external door to one of the units, so that it could be accessed only through the other. Secondly, the new scheme added more extensive internal works, many of which were objectively useless. They included the artificial lowering of part of the basement floor slab, in a way which would achieve nothing other than the creation of an impractical stepped floor in one of the units; the repositioning of smoke vents for no reason; and the demolition of an internal wall at ground floor level followed by its immediate replacement with a similar wall in the same place. The cost of the scheme was estimated by the landlord at £776,707 excluding VAT, in addition to statutory compensation of £324,000 payable to the tenant.
It is common ground that the proposed works had no practical utility. This was because, although the works themselves required no planning permission, it would be impossible to make any use of them at all without planning permission for change of use, which the landlord did not intend to seek. Planning permission would have been required because the scheme involved combining premises permitted for hotel use with premises permitted for sui generis use. In addition, one of the retail units was unusable without an entrance from the street. In accordance with a common practice in this field, the landlord supported its evidence of intention with a written undertaking to the court to carry out the works if a new tenancy was refused. The sole purpose of the works was to obtain vacant possession. The landlord's evidence was that it was prepared to run the risk that the premises occupied by the tenant would be rendered unusable “in order to secure its objective of undertaking [the third scheme] and thereby remove the claimant from the premises.” The landlord submitted that “the works are thoroughly intended because they are a way of obtaining possession. That is all there is to it.” As the landlord's principal witness put it, the third scheme was “designed purely for the purpose of satisfying ground (f).” The judge found that the landlord genuinely intended to carry out the works if they were necessary in order to get rid of the tenant, but that it did not intend to carry out the works if it were not necessary to do so for that purpose. It would not, for example, have been necessary to carry out the works if the tenant agreed to go voluntarily, or it were to be found possible to carry them out by exercising a right of entry without obtaining vacant possession. The landlord gave evidence that in the longer term, it was hoped that the departure of the tenant would facilitate a more ambitious plan of works to add 28 bedrooms to the hotel. It was proposed to review the desirability of proceeding with this plan in 2018. These further works were not, however, the works relied upon by the landlord for the purpose of satisfying ground (f).
Schemes like this will not always be economically feasible. They depend on the value of vacant possession...
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