Where a lease has security of tenure under the Landlord and Tenant Act 1954 (LTA 1954) a landlord wishing to demolish or reconstruct the premises may need to formally oppose the grant of a new tenancy.
Where it does this, the landlord will need to satisfy the court that it has a firm and settled intention to carry out works to the part of the premises the tenant occupies.
In this article, we look at Sainsbury’s Supermarkets Ltd v Medley Assets Ltd [2024] in which the court had to consider whether the landlord had the necessary intention to redevelop, and a novel point about whether the tenant could undermine the landlord’s opposition by moving into a smaller area so that works outside of those areas could not be taken into account.
“Opposed” lease renewal claims
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.
Where a landlord opposes renewal on one of these statutory grounds, and court proceedings are started, the court will usually hold a preliminary hearing to decide whether the landlord satisfies the ground(s) relied on.
If the landlord’s opposition is successful, the court will make an order terminating the current tenancy.
If the landlord’s opposition is unsuccessful, however, the tenant will be entitled to a new tenancy and a second hearing will be held at which the court will determine the terms of the new lease.
Redevelopment ground – Ground (f)
One of the grounds of opposition that is most often used is the so-called “redevelopment ground”.
This ground applies where the landlord intends to demolish or reconstruct the premises at or shortly after the end of the current tenancy and cannot reasonably do so without obtaining possession of the “holding”.
The “holding” is the part of the premises that the tenant is actually occupying for business purposes. In some cases, the tenant may only be using parts of the premises that were included in the original lease. This might, for example, be because the tenant no longer has any use for certain parts of the premises or, commonly, because it may have sub-let to a third party.
To succeed on the redevelopment ground, the landlord needs to show that it:
- Has a firm and settled intention to carry out the proposed works.
- Has a realistic prospect of achieving that intention.
- Would intend to do the works even if the tenant left voluntarily.
The tenant can potentially defeat the landlord’s opposition by stating that it is willing to accept a new lease in which the landlord has the right to enter and carry out the proposed works, or a new lease of only part of the premises.
If the landlord’s opposition under the redevelopment ground is unsuccessful, whilst the tenant is only entitled to a new lease of the “holding” (the bit that it occupies), the landlord can require the tenant to take a new lease of all of the premises. If the tenant does not want to have a new lease of the whole, it can decline to take the renewal lease and walk away.
Sainsbury’s v Medley
This case involved a building in London with a Sainsbury’s supermarket on the ground floor with a basement underneath and three floors above.
Sainsbury’s had a lease of the whole of the building but was only using the ground floor.
From about 2014, the landlord, Medley, had been contemplating a possible development to add a two-storey extension at the rear and changing the use from commercial to residential to create five flats. This original plan did not require Sainsbury’s to give up the ground floor, or the basement.
In January 2021, Medley served a notice informing Sainsburys that it wished to bring the current tenancy to an end and opposed the grant of a new lease relying on the redevelopment ground.
Medley went on to obtain planning permission for the works to create the flats in 2022.
Sainsbury’s started court proceedings seeking a new lease.
During the course of the court proceedings, Medley said that its plans had changed. It said that it had abandoned the residential conversion and now intended to lower the basement floor (for which it obtained planning permission in 2023) and redevelop the existing upper floors for office use (for which no new planning application was needed).
The preliminary hearing to determine whether Medley could satisfy the redevelopment ground was heard in March 2024.
Works to be carried out
The works that Medley proposed carrying out were found to include: excavating the basement to lower the floor level; creating a new compartment wall on the ground floor; forming a new staircase between the ground floor and basement; refurbishing the upper floors for commercial office use; and removing asbestos from the underside of the ground floor.
Landlord’s intention
Having heard the evidence, the Judge found that Medley had failed to prove that it had a genuine and settled intention to carry out the works.
Some of Medley’s evidence about abandoning the residential conversion was found to be implausible, and some of its evidence about the basement was found to be untruthful. Its failure to provide a genuine and enforceable undertaking (a legal promise) to carry out the works if a new tenancy was refused, was also taken into account.
Nor did the Judge believe that Medley had a realistic prospect of carrying out the works.
The works to the basement could not be carried out lawfully in compliance with building regulations, and there were other hurdles to do with access and the construction management plan that Medley could not show could be overcome. All of this led to the conclusion that the works could not practicably be carried out.
As for whether Medley would carry out the works whether or not Sainsbury’s voluntarily gave up possession, the Judge did not consider that it would.
Having said that it had abandoned the residential conversion works, Medley was left with a problem. In order to succeed on the redevelopment ground, it still needed to prove that it would carry out the works in relation to its revised plan. Sainsbury’s argued that some of the proposed works would only proceed if the residential conversion went ahead and that Medley was arbitrarily claiming that those works would be carried out even if it did not.
Ultimately, the Judge agreed, finding that the works had been contrived in order to get Sainsbury’s out of the property.
Medley’s opposition was accordingly unsuccessful meaning that Sainsbury’s is entitled to a new lease.
The “holding”
The Judge’s decision that Medley did not have a genuine and settled intention to do the works was sufficient on its own to dispose of its opposition.
However, the Judge went on to consider an interesting point about the “holding” (the part of the premises the tenant occupies for business purposes).
The extent of the “holding” potentially has to be considered in two contexts.
It has to be considered, firstly, when determining whether the landlord satisfies the redevelopment ground. This is because the redevelopment ground only relates to works to be carried out to the “holding”.
If the opposition fails, the “holding” then has to be considered, secondly, when determining the terms of the new lease.
However, the LTA 1954 only contemplates one hearing, not two.
What happens where a tenant might withdraw from parts of the premises before the preliminary hearing (thereby reducing the size of the “holding”), but then move back into those parts of the premises again before the final hearing at which the terms of the new tenancy are decided?
In this case, Sainsbury’s occupied the ground floor only. The landlord’s proposed works would have intruded into a small area at the rear of the ground floor that was used for storage. Presumably with this in mind, Sainsbury’s vacated that area a week before trial.
Medley had previously indicated that it would require the tenant to take a new lease of the whole of the property if a new lease was granted. It argued that references to the “holding” in the redevelopment ground should therefore be read as references to the whole of the premises, not just the part the tenant happened to occupy at the time of the preliminary hearing. Otherwise, the tenant could (as Sainsbury’s had done) withdraw into a smaller part of the property before the preliminary hearing in an effort to defeat the landlord’s opposition (because works outside of the, now smaller, “holding” would not be considered) and then move back in by the time of the final hearing and end up with a lease of a larger part, or the whole, of the original premises.
The Judge did not agree that the “holding” for the purposes of considering the redevelopment ground referred to the whole of the premises as original let.
On the correct interpretation of the legislation, the Judge considered that the “holding” means only the part of the premises that the tenant occupies for business purposes. It has the same meaning even if the court potentially has to consider the matter at two different points in time (at the preliminary hearing and then again at any final hearing).
Given that Sainsbury’s was not in occupation of the basement or a small area of the ground floor, those areas did not form part of the “holding” at the date of the preliminary hearing.
Medley’s proposed works to those areas therefore fell outside of the “holding” and did not engage the redevelopment ground.
Demolition, reconstruction or substantial construction work
The Judge did not in any case consider that the works were sufficient to come within the redevelopment ground even if they were within the “holding” and even if Medley had a genuine and settled intention to carry them out.
The redevelopment ground relates to the demolition or reconstruction of the whole or a substantial part of the “holding”, or substantial works of construction to the whole or part, which the landlord could not reasonably carry out without obtaining possession.
In this case, for example, widening a staircase was not “demolition” or “reconstruction” of a substantial part of the premises; it would come within “construction”, but there was not enough evidence to show that the works would be “substantial”.
The proposed works to the ground floor and basement could in any event reasonably be carried out without the landlord needing possession.
On this point, the Judge preferred evidence from Sainsbury’s expert showing that Sainsbury’s could remain in occupation throughout the proposed works.
Sainsbury’s offer to allow access and facilities for works
For similar reasons, the Judge found that, even if Medley had otherwise satisfied the redevelopment ground (which it had not), it would have been defeated by Sainsbury’s offer to include provisions in the new lease giving the landlord access to carry out the intended works.
The works could reasonably be carried out without obtaining possession and without interfering with Sainsbury’s business to a substantial extent or for a substantial time.
WolfBite
The case serves as a useful reminder of the need to get one’s ducks in a row when opposing a lease renewal (as landlord) or challenging an opposition (as tenant).
In this case, the landlord’s evidence showed that its plans for the basement and office refurbishment were not far advanced (particularly compared to the residential conversion it had abandoned). That put it on the back foot. It was then hampered still further by a factual witness found to lack credibility and an expert witness whose evidence contained errors, inaccuracies and unsubstantiated opinions and who was found to be unaware of their duties to the court.
What makes this case particularly interesting, though, is the point about the “holding”, and the potential for a tenant to retreat into a smaller part of the premises before the preliminary hearing to make it harder for a landlord to satisfy the redevelopment ground.
This is unlikely to be commercially feasible for many tenants, and it will in any case depend on what works the landlord is proposing in each situation.
Even where it could be deployed, however, a landlord could, at the final hearing, still force the tenant to take a new lease of the whole of the premises.
We can, however, see the potential for this to be used for tactical purposes, for example where a tenant wants to buy itself more time or improve its negotiating position.