The Landlord and Tenant Act 1954 (the Act) provides tenants of commercial premises (exclusions apply) a right to renew their lease when the initial period of their lease comes to an end. What if the landlord has an intention to redevelop the premises and does not wish to be subject to a further lease beyond the initial term?
The Act allows the landlord to serve a Section 25 Notice, no more than 12 months before the lease end date, to bring the lease to an end at the end of the term. Within that Notice the landlord will need to state that it opposes the grant of a new lease.
There are 7 grounds to oppose a renewal lease: Grounds A, B, C, D, E, F and G.
For the purpose of this note, we focus on Ground F: that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises or a substantial part of those premises, or to carry out substantial work of construction, which could not reasonably be done without having obtained possession.
Having received a Section 25 Notice giving Ground F as the landlord's reason to oppose a new lease, the tenant may accept that the landlord has a genuine intention to redevelop and may not contest the Notice.
However, in many situations at the time Notice is received, there may not be sufficient information available to the tenant to understand if the landlord has a genuine intention to demolish or reconstruct, and/or may in fact be using this ground of opposition as a means of getting the property back for other reasons.
Tactically landlords might try this route where they want to replace the tenant and/or impose fresh terms which they could not expect to get away with unless the current lease were to be brought to an end. This is because the starting point for any renewal lease is the terms of the current lease save for reasonable modernisation. A landlord cannot expect a tenant to agree or a Court to impose much more onerous provisions on the existing tenant, or new terms favourable to the landlord on a renewal.
If relying upon Ground F, the landlord must expect to divulge plans and details of their intended scheme, to satisfy the tenant that the intention is genuine. For example, the landlord may be able to provide lending arrangements in place or available; surveys; board minutes; planning applications; and feasibility studies paid for and in existence, which evidence the landlord's plans.
Ground F will not succeed if the landlord themselves have no intention to reconstruct or demolish and instead intends to immediately sell to a developer for them to carry out the work.
If the tenant does not accept the landlord has a genuine intention or that they would be happy to keep a lease of a smaller area (to allow for redevelopment or demolition of part), the tenant will need to apply to the Court. Ultimately, the Court will then look at the proposals and decide if the works proposed do genuinely require construction or demolition (requiring structural changes as opposed to merely redecoration).
Intention under Ground F is assessed at the date of the trial (if the Notice is contested by the tenant), not the date the Notice was served. The intention must be 'firm and settled' and the landlord must have a 'reasonable prospect' of fulfilling its plan.
A tenant who loses their right to renew for reason of Ground F, does have a right under the Act to compensation from the landlord, unless their lease includes an exclusion provision, and certain criteria is met.
Specialist Property Advice
Porter Dodson's specialist Property Disputes team provide advice to both landlords and tenants on all aspects of Section 25 Notices and grounds of opposition.