Court of Appeal: landlord entitled to refuse new lease due to tenant's failure to allow access

Out-Law News | 09 Jul 2014 | 9:39 am | 4 min. read

A landlord was entitled to refuse to grant a new tenancy to a commercial tenant due to that tenant's "substantial breach" of provisions in the lease allowing the landlord to access and inspect the property regularly, the Court of Appeal in England has said.

The tenant, Zoe Youssefi, had argued that she was entitled to a new lease on substantially the same terms under the security of tenure provisions in the 1954 Landlord and Tenant Act. Joan Mussellwhite, the landlord of the property, successfully argued in the county court that she was entitled to terminate the tenancy under grounds set out in that piece of legislation.

Although the Court of Appeal found that Mussellwhite had not successfully established some of the grounds on which she had ended the tenancy, it held that she was entitled to do so due to Youssefi's ongoing refusal to allow her access to the property in breach of Youssefi's obligations under the lease and failure to use the premises for use within Use Classes A1 or A3 as required by the lease. Under the 1954 Act, a landlord can refuse to grant a new tenancy due to "substantial breaches by [the tenant] of its obligations under the current tenancy, or for any other reason connected with the tenant's use or management of the holding".

More generally, the Court of Appeal found that it was not necessary for the landlord to prove that any breach "adversely affects the rental income or the value of the reversion" in order to demonstrate that her interests would be "prejudiced" or that granting a new tenancy would be "unfair". These were the tests that the court had to apply when deciding whether or not the tenant "ought not to be granted a new tenancy" in the light of the breaches relied on by landlords opposing leases on the tenant default grounds in Section 30(1) of the Act.

Showing an affect on rental or reversionary value "seems to me to be too concrete a test and an inappropriate constraint on the wide discretion given under the section," the judge said.

"It was clear from the evidence before the judge ... that [Youssefi] had on numerous occasions thwarted the proper attempts made by [Mussellwhite], her agents and experts to gain access to the premises for the precise purpose set out in the lease – namely to examine their condition," said Lady Justice Gloster in her leading judgment.

"The judge was clearly entitled to reach the conclusion on the facts that 'this lamentable history demonstrates a long-standing intransigence on the part of the defendant to afford access by the landlord to the property'. The fact that the respondent had frankly admitted that she did not want to renew the lease and wanted to sell property with vacant possession because, as the judge found, she had become exasperated with all the issues which surrounded the tenancy, was irrelevant to the issues as to whether [Youssefi's] breaches of the access covenant were substantial. The fact ... that [Mussellwhite] had not been able to show any loss resulting from the refusal of access was also irrelevant," she said.

The Court of Appeal also found that Youssefi had breached the use clause under the lease, which required her to use the premises for one of a number of stipulated purposes; for example, as a shop. The county court judge had found no evidence that Youssefi was actually using the property as a shop, and instead was carrying out "only vestigial business activity at the premises", Lady Justice Gloster said.

The 1954 Act gives a tenant the automatic right to renew the lease, unless their landlord can prove one of the statutory grounds of opposition. In the county court, the judge upheld Mussellwhite's objection to the new tenancy based on Youssefi's alleged failure to repair and maintain the property, but ruled against Mussellwhite on Youssefi's alleged persistent delay in paying the rent. Although the Court of Appeal upheld the county court's findings that opposition based on ground (c) of Section 30(1) of the Act ("other substantial breaches"), it ruled against Mussellwhite on her opposition based on ground (a) (disrepair) and ground (b) (persistent delay in rent payments).

"The [county court] judge found that there was unrestricted plant growth on the rear wall of the building," said Lady Justice Gloster. "He correctly held that this was not a breach of the tenant's repairing covenant, but concluded that it was nonetheless a breach of the implied obligation to use the premises in a tenant like manner."

"Whilst it is true that the entirety of the building and the garden, or rear yard, had been demised to [Youssefi], and it may have been [her] responsibility to keep down weeds in the garden and to control the plants generally as part of routine maintenance, I do not think that the removal of the creeper from the structure of the building was her responsibility. Moreover, it seems to me that the judge was wrong to think that the failure to remove the creeper, even if it were a breach of a tenant's repairing obligation, was a substantial breach when the sum involved in carrying out the work was said to be only £350," she said.

Property litigation expert Siobhan Cross of Pinsent Masons, the law firm behind Out-Law.com, said that the case was helpful as it provided Court of Appeal guidance on the correct tests to be applied in deciding whether, if sufficiently serious breaches were established, the tenant "ought not to be granted a new tenancy" made it clear that adverse impact on rental or the value of the reversion was not a requirement.

She said that this was the second recently-reported case in which a tenant had been refused a new lease following a case involving Horne & Meredith Properties and Cox and Billingsley, where an excessively litigious tenant was refused a new lease. Taken together, the decisions should encourage landlords to tackle problem tenants on lease renewal, she said.