The Landlord and Tenant Act 1954 (the “Act”) recently celebrated its 70th birthday. Many commercial landlords will already be aware of the difficulties in taking back a property from a tenant with security of tenure, and a recent case suggests that the balance of power continues to swing in the tenant’s favour.
The Act
The Act was brought into force in the post-war period as a way to support tenants in a market weighted heavily towards landlords’ interests. However, in recent times there have been calls to review this ageing piece of legislation, with some arguing that it no longer reflects the modern market.
Unless the security of tenure right has been specifically excluded in a lease, the general rule is that a commercial tenant operating a business from its premises has the right to remain in the property after the end date of its lease, unless the landlord can rely on specific exceptions. “Ground f”, which is where the landlord has an intention to redevelop the property and the works cannot be carried out whilst the tenant remains in situ, is a ground frequently used where a site has development potential.
Ground f Hurdles
At first glance this seems relatively straightforward. Yet, historically the Courts have made it difficult for landlords to rely on ground f. For example, what is meant by an “intention” to redevelop? The intention must be “firm and settled”, which is not always easy to prove. If too many practical hurdles exist, such as difficulty obtaining planning permission, then an “intention” cannot be shown. And who must show the intention? It must be the landlord entity itself, and not, for example, a third party developer or contracted purchaser for the site who is going to carry out the development. These are only two examples of the existing hurdles, and a recent Court case involving Sainsbury’s may have added yet another. It relates to the meaning of “possession of the holding”.
The Sainsbury’s Case
Sainsbury’s was a tenant of property in London. It was the tenant of the whole building, but operated on the ground floor only, and did not use the basement or upper floors. Sainsbury’s had security of tenure under the Act. The landlord served a notice that it would not renew the lease based on ground f. The intended redevelopment encompassed the basement, upper floors, and a small storage area on the ground floor. The court decided that the phrase “the holding” means the part of the property actually occupied by the tenant at the time of the order, but the definition is flexible and the tenant can adapt its ”holding” in response to the landlord’s plans, perhaps by temporarily occupying the part of the property which they know the landlord wants to redevelop. In this case, Sainsbury’s temporarily occupied the storage area to disrupt the landlord’s plans.
Forward Thinking
The case demonstrates the difficulties landlords can face when trying to take back possession of property when a tenant occupies under a protected lease. Landlords who intend to redevelop or regain possession of their property at the end of a lease term should take legal advice as early as possible – discussing your next step before you serve a notice can assist in understanding the options available. Equally, landlords looking to let a commercial property should consider the consequences of whether or not a lease excludes the right to security of tenure. This is often a key negotiation point in heads of terms, and discussing future plans with a solicitor before finalising heads of terms could assist in avoiding potential issues later on.
Get In Touch
If you are the owner of commercial investment property subject to a lease, or you intend to grant a commercial lease, we can help you to understand the impact of the Act and provide advice tailored to your situation to manage its impact. Please contact Beth Margetson or Phil Hunt at mfg Solicitors on 0121 2367388, or fill in one of our Contact Forms and a member of our team will be in touch.
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