How has the Franses case affected the Landlord and Tenant Act?

Much has already been written about the case of S Franses Limited v Cavendish Hotel (London) Limited (2018, Supreme Court).

By way of a recap, the court had to grapple with interpreting section 30(1)(f) of the Landlord and Tenant Act 1954 (“the Act”) which permits a landlord to recover possession of business premises from a tenant who has security of tenure under the Act at the end of the tenancy save where it can be shown:-

“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”.

Therefore the landlord might rely on ground (f) to carry out any of the following works:-

• Demolition of the whole of the premises comprised in the holding.
• Demolition of a substantial part of those premises.
• Reconstruction of the whole of those premises.
• Reconstruction of a substantial part of those premises.
• Carrying out substantial work of construction on those premises.
• Carrying out substantial work of construction on part only of those premises.

In the Franses case the tenant was a textile dealership based in Jermyn Street, London. The landlord was the operator of an adjoining luxury hotel. The tenant had served a request for a new business tenancy under section 26 of the Act and the landlord had opposed that request on ground (f). The landlord prepared schemes of works which changed at various stages. Local planning policy protected niche retail uses which restricted the development options available for the landlord in expanding the luxury hotel into the premises occupied by the tenant. By the time the case was before the court, the landlord’s latest scheme lacked any practical utility and it was clear it had been designed to solely to seek to satisfy the provision of ground (f). The landlord was perhaps unusually candid about this and its motives.

As is usual in cases of this type, the landlord had given an undertaking to the court to carry out the works if it succeeded in the case and recovered possession from the tenant. The works would cost the landlord over £750,000 and take almost six months to complete.

The trial judge decided that the landlord had proved necessary intention, even though he had found that the only reason why the works were proposed was to obtain possession on ground (f) and he considered, in accordance with existing case authority, that the landlord’s motive were an irrelevant consideration. This decision was upheld on appeal before the High Court and, because of importance of the matter being decided and an appeal directly to the Court of Appeal may have simply led onto a further appeal to the Supreme Court, the matter went to the Supreme Court under “leap frog” appeal process.

In the Supreme Court it was noted that the scheme presented by the landlord was designed so as to be (i) sufficiently “substantial” to satisfy ground (f), (ii) too substantial and disruptive to be carried out by the landlord whilst the tenant remained in possession; and (iii) avoid the need for planning permission to be sought (because that may have enabled the tenant to argue that planning permission would have been refused and therefore the works could not have been implemented at all). It was noted that the landlord, even if the works were carried out as planned, could not actually use the premises occupied by the tenant without first obtaining the planning permission for change of use which the landlord confessed it did not intend to seek. The sole purpose of the proposed works was to obtain vacant possession.

The Supreme Court confirmed principles existing under case law, such as the relevant intention of the landlord being at the date of the trial hearing and not any earlier and that in general motive is irrelevant provided a genuine intention to carry the works out exists and it is irrelevant as to whether or not the works might be considered to be objectively reasonable. However, it was held that the landlord’s intention to carry out the works was conditional and the condition was on their being necessary to obtain possession so that if the tenant had left voluntarily, the landlord would not have carried the works out at all. It was held that the landlord’s intention to carry out the works to satisfy ground (f) must exist independently of the tenant’s claim for a new lease and to remain in possession, so that “the acid test”, as it was described, is whether the landlord would have carried out those works if the tenant had agreed to leave voluntarily instead of opposing the landlord’s possession claim. As there was a conditional intention on part of the landlord to carry those works out then the landlord could not show the fixed and settled intention required by ground (f).

Whilst considerations of motive and commercial viability or utility are not in themselves part of the test for satisfying ground (f), they are likely to be of forensic value in the court assessing the landlord’s intention and in particular whether it is deemed to be both genuine and unconditional and thus grant possession to the landlord and refuse a tenant a new tenancy.

In practical terms this may well mean that the landlords will disguise their intentions more effectively than the landlord in Franses had done and this possibility was accepted by the court but the court considered that it would be a function of judges considering such matters to see through any claimed intention of a landlord of a kind which would not satisfy ground (f).

Much greater emphasis therefore will now need to be placed by those advising landlords to demonstrate fixed and settled (unconditional) intentions in carrying out their works. The works should have practical utility, should not necessarily rely on planning permission being obtained where there is doubt as to whether that can ultimately be achieved and tenants might well demand more evidence as to steps taken by the landlord over and above any preparatory steps for the landlord to carry out the works themselves as opposed to accepting an undertaking of the kind commonly given by landlords in the past and which was given Franses. This may mean that sceptical tenants are far more likely to challenge claims by landlords for possession under ground (f) than before and will increase the number of disputes between the parties that might not be capable of resolution outside of court.