English High Court clarifies landlord works timing in redevelopment lease renewal cases

Pridewell Properties (London) Ltd v Spirit Pub Co (Manaqed) London Ltd concerns The Railway Bell, a pub in South Woodford, London. The tenant, Spirit Pub, had occupied the premises since October 2007. The landlord, Pridewell (an SPV entity), had been registered as freehold owner since November 2014.

The landlord sought to oppose the grant of a new tenancy under section 30(1)(f) Landlord and Tenant Act (LTA) 1954 on the basis of its intention to carry out redevelopment works. These included the construction of three new mews houses within the beer garden and further works that would have substantially reduced the space available to the pub operator.

Directors' personal guarantees

At first instance, the court rejected the landlord's ground of opposition on the basis that it had failed to adduce evidence that its directors would be able to provide personal guarantees of sufficient value to satisfy its lender and secure the financing to carry out the development. On all other points that were brought by the tenant, including the landlord's outstanding planning permission and an unidentified restrictive covenant, the court found in the landlord's favour.

The landlord was granted permission to appeal on the financing/personal guarantees issue, with the tenant cross-appealing on the four other points that were determined in the landlord's favour.

The landlord's appeal failed, but the court also addressed the tenant's cross-appeal.

While the decision is a salient reminder that the ability to fund the redevelopment works is a key part of proving intention, it is the court's commentary surrounding the intention to carry out the works "on the termination of the current tenancy"  that will be of particular interest to the property industry.

Meaning of 'on termination of the current tenancy'

In order to successfully rely on section 30(1)(f) LTA a landlord is required to demonstrate "on the termination of the current tenancy" that it intends to demolish or reconstruct the premises, or carry out substantial construction works and that it could not reasonably do so without obtaining possession.

In cases such as this one, where the landlord is yet to have obtained planning permission before the trial, the court must therefore assess whether there is a reasonable prospect of it doing so in time to start the works "on termination of the current tenancy".

In the decision at first instance, the court had accepted expert evidence that the start of works would be between 10 and 14 months after the possession date, and had concluded that this was a "reasonable time" within the meaning of ground (f).

Historically there has been a focus on the interpretation of "within a reasonable time", following the much-cited Supreme Court decision of S Franses Ltd v Cavendish Hotel (London) Ltd. However, in this case the court disagreed with the approach taken in the first instance decision (which adopted S Franses) and subsequently set out a careful explanation of the case law and the judicial development of the legal test, focusing on the requirement for the landlord to intend to carry out its works "on termination of the current tenancy".

The court held that the correct question is not whether the length of the expected delay is reasonable, but whether, given that a delay of that length is likely, the landlord can be said to intend to carry out works "on the termination of the current tenancy".

The court also observed that the phrase "within a reasonable time" is only a paraphrase of the statutory test, and was not intended as a "freestanding broad assessment of what is reasonable in all the circumstances", such that the court is not bound by the approach that was previously generally accepted to have been taken and applied in S Franses.

Resetting the judicial approach

To illustrate the apparent resetting of the judicial approach to timing in ground (f) cases, the court explained that where a landlord intends to apply for a contentious planning permission six to seven months after the possession date, dependent on the results of surveys and pre-application consultations that can only take place after possession (as per the facts of this case), it will not satisfy the requirement to have the intention to carry out the works "on the termination of the tenancy".

By reference to the facts of the current case, a delay of this nature was not merely "after a time" but after a substantial time.

Practical steps for landlords

The following would be useful practical steps for landlords:

• Rather than overstretching ground (f), landlords who know they will need time to obtain planning permission after recovering possession should seek to obtain planning permission before trial if at all possible.
• Where that is genuinely not feasible, the court emphasised that the policy of the LTA 1954 provides a landlord with other tools. A developer should consider the contractual and procedural alternatives the legislation provides, including a short new lease with survey access rights, a break clause for redevelopment, or the section 31(2) mechanism for deferring termination (near-miss provisions).
• Before granting a new lease, landlords should ensure they reserve extensive rights of access for undertaking surveys and inspections.

Osborne Clarke comment

This decision provides important guidance for both landlords and tenants in commercial lease renewal disputes, in the context of development-led opposition under ground (f).

The court has confirmed the correct question is whether a delay is so short that the landlord can still be said to intend to do the works "on termination". The judgment arguably significantly tightens the window within which a landlord without planning permission can credibly rely on ground (f).

The absence of a planning application before trial is not necessarily fatal, but it does require the court to assess both the prospects of success and the associated timescales.