Where an existing tenancy has been terminated because the landlord stated an intention to occupy the premises for its own business, the tenant may be able to claim compensation under the Landlord and Tenant Act 1954 (LTA 1954) if the court finds that the landlord misrepresented its intentions.

In McDonald’s Restaurants Ltd v Shirayama Shokusan Company Ltd [2024], the High Court had to decide whether the landlord had misrepresented its intentions where, whilst it had gone on to open a similar business, it had not opened the specific business it had told the Court it intended to open.
 
Opposing renewal on the own occupation ground - Ground (g) 
 
A tenant that occupies premises for the purposes of its business will, subject to certain exceptions, have “security of tenure” under the LTA 1954 which includes the right to a new lease. 
 
A landlord can, however, oppose the grant of a new lease, but only on limited grounds contained in section 30(1) of the LTA 1954. 
 
One of the statutory grounds of opposition is Ground (g), where the landlord intends to occupy the premises for the purpose of its own business. 
 
To succeed on this ground, the landlord needs to show that it has a firm and settled intention to occupy the premises for the purpose of its business within a reasonable time of the termination of the existing tenancy, and a reasonable prospect of achieving that intention. 
 
The landlord does not necessarily need to intend to occupy the premises itself. There are situations in which the landlord will be treated as intending to occupy, even if some other connected entity will go into physical possession, such as a company within the same group.  
 
If the court is satisfied that the landlord has the requisite intention to occupy the premises for its own business, it will make an order terminating the current tenancy. 
 
When can compensation for misrepresentation be claimed? (Section 37A)

If it appears to the court that the landlord misrepresented the position or concealed material facts, and as a result it made a termination order, refused to grant the tenant a new lease or the tenant gave up possession having withdrawn or not made a claim for a new lease, it can order the landlord to pay compensation. 
 
Such a claim is made by the tenant under section 37A of the LTA 1954. 
 
To make a successful claim for misrepresentation, there must be a representation of fact that is false. 
 
The purpose of section 37A is to encourage fair dealing between the parties. The LTA 1954 puts the landlord in a special position, in that the tenant’s lease can be terminated partly by reference to the landlord’s subjective intentions. This is open to abuse unless the landlord acts responsibly and in good faith. 
 
The termination application 
 
McDonald’s had a 20-year lease of premises in the old County Hall building very close to the London Eye. 
 
The lease had security of tenure under the LTA 1954. Near the end of the contractual term, McDonald’s served a notice under the Act requesting a new lease. 
 
The landlord, Shirayama, opposed McDonald’s request for a new lease relying on Ground (g), on the basis that it intended to occupy the premises for the purposes of its own business. 
 
The landlord commenced County Court proceedings seeking an order terminating McDonald’s lease.  
 
A trial of a preliminary issue was held to determine whether the landlord could satisfy Ground (g). 
 
The landlord had two witnesses who gave evidence that the landlord intended to operate a business from the premises, to be known as Zen Bento.  
 
Zen Bento was to be a Japanese style bento restaurant, to be run by one of the landlord’s group companies. 
 
The landlord gave an undertaking (a legal promise) to the court, which served to reinforce the landlord’s evidence as to it intentions.  
 
The undertaking confirmed that the landlord intended to occupy the premises through a subsidiary company for the purposes of its new business, and that Zen Bento would commence trading as soon as reasonably practicable after obtaining vacant possession. 
 
The County Court judge was satisfied that the landlord had shown it had a firm and settled intention to occupy the premises for its own business within a reasonable time from the termination of McDonald’s tenancy, and that it had a reasonable prospect of achieving that intention.  
 
The County Court was persuaded that the landlord had funding in place, a business plan, and quotes and a programme for the fit-out works that were to be carried out in time to open the Zen Bento restaurant on 3 November 2019. 
 
The judge, having found that Ground (g) had been established, made an order terminating McDonald’s lease (the Termination Order). 
 
The misrepresentation claim 
 
McDonald’s vacated the premises by 5 March 2019. 
 
Some eight months later, in November 2019, one of its external lawyers informed McDonald’s that they happened to have been walking past the premises which still appeared to be standing empty.  
 
McDonald’s head of estates for the UK made his own external inspection of the premises in January 2020. From what he could see through the windows, no work had been done to the premises. 
 
In March 2020, McDonald’s solicitors sent a letter of claim to the (now former) landlord, accusing it of misrepresenting its intentions at the trial of the preliminary issue. 
 
Shortly after this, a restaurant serving Japanese food run by the landlord’s subsidiary opened for business on the ground floor, but not under the Zen Bento name.  
 
This coincided with the first government-imposed COVID-19 lockdown, so the business could initially only serve takeaway food. 
 
The restaurant subsequently opened for dine-in food. The landlord attempted to extend the dining area into the basement, but this proved unviable. The basement area was in due course turned into an English-style coffee shop and bakery. 
 
McDonald’s issued proceedings in the High Court, claiming that the landlord had made a series of representations in the termination application which the County Court had relied on, and which had resulted in the Termination Order that brought its lease to an end.  
 
McDonald’s said that, had those misrepresentations not been made, it would have been entitled to a new 15-year lease. It sought compensation under section 37A of the LTA 1954 including for the loss of profits that it would have realised if a new lease had been granted. 
 
The landlord denied the claims.  
 
The landlord said that, whilst the restaurants that it had opened were not exactly the same as those described in the evidence given to the County Court, it did have a firm intention to open a business as described at the date the Termination Order was made. The fact that it had changed its mind after the preliminary trial, and opened a different restaurant, did not mean that its evidence had been false or undermine the conclusions the judge had reached. 
 
Having considered the evidence, the High Court found that the landlord had put its case at the trial of the preliminary issue on the basis of a specific set of proposals for a specific type of restaurant called Zen Bento.  
 
There was no qualification to this. There had been no suggestion that, whilst it intended to occupy the premises for its own business, the landlord had yet to work out the details of the restaurant business it intended to open. 
 
The landlord’s key witnesses had told the court of the intention to commission and open Zen Bento. The undertaking had specifically said this as well. 
 
However, the High Court was shown a number of extraordinary e-mails that the landlord’s principal witness had started sending out within just a few hours of the Termination Order being made.  
 
In these e-mails, the landlord set out a “floating series of proposals” for the use of the premises ranging from a grab and go restaurant with no internal seating, through to a restaurant for children, a Michelin 3-star restaurant, and a high-class Spanish style fish restaurant, before resting on the Japanese restaurant and English bakery that eventually opened. None of these e-mails referred to Zen Bento.  
 
The High Court considered that these e-mails demonstrated that the landlord regarded itself as being free to develop whatever kind of restaurant it wished. 
 
The High Court also expressed surprise that, within a few days of the Termination Order, the landlord told the company it said it had lined up to carry out fitting-out works at a cost of over £1 million, to “forget McDonald’s”.  
 
Other key members of the team who were purportedly going to be involved with the Zen Bento restaurant were similarly stood down, or dropped out of the picture. 
 
The landlord sought to argue that it had not expected to succeed at the trial of the preliminary issue. When its opposition was unexpectedly successful, it was faced with the reality and, largely due to Brexit-related problems, quickly realised that Zen Bento was “mission impossible”. 
 
The High Court judge did not accept any of this.  
 
It found that much of the landlord’s evidence was not credible, including because of the very short amount of time between the Termination Order being made and the e-mails, just hours later, in which it had started proposing alternative restaurant concepts.  
 
Overall, the High Court considered that the true position was that the landlord had sought to take back the premises from McDonald’s so that it could then decide what to do with the space. It had not pursued the termination application in order to open Zen Bento. Rather, it had wanted to keep its options open. 
 
It was not, in the court’s view, credible that the landlord had simply changed its mind immediately after the Termination Order had been made. It found that Zen Bento was never opened for business because there had never been any intention to open Zen Bento for business. 
 
The High Court held that the landlord had deliberately misrepresented its intention to the County Court at the trial of the preliminary issue.  
 
The Termination Order had been obtained as a result of the misrepresentation. The landlord had not acted responsibly and in good faith. 
 
The landlord was accordingly liable to pay compensation to McDonald’s under section 37A.  
 
Subject to any appeal, the amount of that compensation will be determined at a future date. 
 
WolfBite 
 
Previous case law has confirmed that if a landlord establishes at trial that it has a genuine intention to occupy for its own business, the tenant will have no remedy if the landlord honestly changes its mind at a later date.  
 
Some commentators have expressed concern that this decision runs contrary to that previous case law. At first blush, the landlord said that it would open a Japanese restaurant, and that is what it did even though it may have changed its mind about the precise identity of the business. 
 
However, the High Court made it clear that its decision was based on the specific representations the landlord had made. The landlord specifically stated that its group company would operate Zen Bento when the contemporaneous evidence showed that it did not have that intention.  
 
The court said that even if (which was not the case) it was relevant to consider whether the landlord might have satisfied Ground (g) if it had told the truth, it doubted that the landlord would have succeeded given that the case would have looked so different.  
 
It might be tempting to say that one lesson to be drawn is not to send e-mails immediately following judgment that contradict the evidence you have just given.  
 
Of course, the real lesson is not to misrepresent your intentions to the court to begin with