Out-Law News 4 min. read
02 Nov 2023, 4:17 pm
Two recent business tenancy appeals in England are likely to catch the eye of the Law Commission as it considers potential reforms to the 1954 Landlord and Tenant Act, according to one legal expert.
In 2018, solicitors for tenant Lees News Limited served notices under the 1954 Act requesting renewed leases for two properties. The landlord, Gillcrest UK Pension Scheme, opposed the requests on grounds that Lees News had left the properties in a state of disrepair and had persistently failed to pay rent on time. It also claimed that Lees News had substantially breached other tenancy obligations, and that it planned to redevelop the property – one of the grounds on which a landlord can oppose the renewal of a business lease under the Act.
Ian Morgan, property dispute resolution expert at Pinsent Masons, said an interesting and relevant question in the case was at what date should the court assess breaches by the tenant. “Was it, for instance, when the landlord served its counter-notice opposing renewal of the tenancy, or could the court look back at the tenant’s ‘overall performance’ throughout the tenancy, including repairs that the tenant made in the run-up to the hearing? Put another way, would the landlord fail in its quest to oppose the grant of a new tenancy if the tenant ‘got its house in order’ in time for the hearing, regardless of its conduct beforehand?” he added.
Handing down his judgment, Lord Justice Lewison found that Lees News had clearly started work to repair the premises, even though it had failed to disclose this to the landlord or the court, in the hope that by the date of trial the works would be complete. He added: “What has happened between the date of the notice (or counter-notice) and the date of the hearing is plainly relevant; and doubtless in many cases it will be given considerable (or even decisive) weight.”
Despite this, the judge dismissed Gillcrest’s appeal, stating that he was “satisfied” the tenant had received a “rude awakening” and would not allow the company “to fall into breach” of the 1954 Act again.
Morgan said: “This case serves as a timely reminder of the complexities involved in opposing the grant of a new tenancy to a business tenant under the 1954 Act. It re-emphasises that the court will not shy away from looking back at conduct and the overall factual matrix both before and after the service of any notices although the extent to which this is relevant is in itself dependent on the context and the particular grounds of opposition specified, and specialist advice should always be sought.”
“When considering the statutory test as to whether the tenant ‘ought not’ be granted a new tenancy, the judge considered evidence about the landlord and tenant’s relationship over the course of the lease as a whole. Landlords and tenants alike would therefore be well advised to be mindful that if their lease is not contracted out, that is, it is inside the 1954 Act protections, their dealings and conduct towards one another throughout the entire contractual term may well become germane sources of dispute when it comes to renewal, and may be disclosable,” he added.
In total, it took five years from the date of notice until the Court of Appeal ruling resolved the matter. Morgan said: “Given that many modern leases of commercial premises are granted for a contractual term of around five years or less, this case may well be cited by many to the Law Commission as an example of a need for a streamlined decision-making process.”
He added: “The court system is under tremendous pressure and no amount of legislative gymnastics alone will significantly speed things up. Reforms to the forum in which proceedings are resolved, such as out of court, via tribunals or the use of alternative dispute resolution methods, coupled with possible technology-enabled digital solutions, are all likely to play their part.”
In another recent dispute between B&M and HSBC, B&M, the tenant requested a new lease in January 2021 under the 1954 Act. If HSBC, the landlord, wished to oppose the grant of a new lease, it was supposed to respond within two months with reasons, such as redevelopment. However, due to a mistake in HSBC's mailroom, it missed the deadline, and as a result was legally required to grant the new lease.
However, HSBC was able to obtain a ‘break clause’ in the new lease, which would allow it to end the new lease early, but only if it could prove one of the grounds, such as redevelopment, in the 1954 Act. With the initial request in January 2021, and the final decision in October 2023, B&M was able to occupy the property for a significant period after the contractual term of their existing lease had expired, using the legal framework known as ‘holding over’ under the 1954 Act.
Morgan said: “Notices are a particular area of risk and something as apparently simple as the service of a statutory notice can be mired with traps for the unwary. In this case, a redevelopment break clause was included, but it should be remembered that the underlying lease itself would have the protection of the 1954 Act, so the landlord would have to satisfy ‘ground (f)’ or other statutory ground or grounds of opposition at the relevant time and potentially pay statutory compensation,” Morgan said.
He added: “Again, this type of issue is one that the Law Commission may well need to grapple with in its reform of the 1954 Act, with many claiming that paper notices are out of vogue. Again, digital solutions will doubtless be part of the picture and it will be exciting to debate and work through with other stakeholders in the real estate sector what a streamlined, future-proof system that works will look like.”
05 Apr 2023