Court decisions where landlords have opposed renewal on the grounds of tenant default are rarer still.
Court of Appeal judgments involving fault-based oppositions are like hen's teeth, but one such judgment has just come along.
In this article we look at Gill v Lees News Ltd [2023] in which the Court of Appeal gave guidance on how judges should approach their value judgment when deciding whether the tenant “ought not” to be granted a new lease in view of the tenant’s default.
Opposition to lease renewal
A tenant that occupies premises for the purposes of its business will, subject to certain exceptions, have “security of tenure” under the LTA 1954.
This gives a tenant of a lease that was granted for a fixed period the right to remain in occupation after the expiry of the contractual term, and to apply for a new tenancy.
A landlord of a tenancy with security of tenure can, however, oppose the grant of a new lease, but only on limited grounds contained in section 30(1) of the LTA 1954.
The landlord can oppose renewal either by serving a “hostile” section 25 notice specifying the grounds of opposition it relies on, or by serving a counter-notice if the tenant has already served a section 26 request for a new lease.
There are seven statutory grounds of opposition:
- Failure to comply with repairing obligations.
- Persistent delay in paying rent.
- Other substantial breaches or other reasons connected with use or management.
- Offer of suitable alternative accommodation.
- Uneconomical sub-letting of part.
- Landlord intends to redevelop.
- Landlord intends to occupy.
Grounds (a), (b), (c) and (e) are discretionary. If the substance of the ground is established (for example, if it is shown that the tenant has breached its repairing obligations), the court will go on to consider whether the tenant “ought not” to be granted a new tenancy in view of the tenant’s behaviour.
The other grounds are mandatory. If proved, the court must refuse to order a new tenancy.
Grounds (e), (f) and (g) are “no fault” grounds. If, but only if, the court refuses to order the grant of a new tenancy solely on one of these grounds, the tenant is entitled to statutory compensation.
Landlords can oppose renewal on more than one ground. They cannot, however, change those grounds, although they can abandon one or more grounds at a later date.
Compensation can be awarded if the landlord is found to have misrepresented its position or concealed facts.
A landlord’s notice can potentially be ruled to be invalid if it can be shown that the landlord did not have an honest belief in the ground or grounds specified.
Gill v Lees
In this case, the tenant occupied premises in London under two leases. It sought new leases by serving two section 26 requests. The landlord served counter-notices opposing renewal, relying on Grounds (a), (b), (c) and (f).
The landlord’s opposition on Ground (f) (redevelopment) failed at trial. The focus therefore shifted to the discretionary grounds.
On Ground (a), the trial judge found that, although the premises had been in substantial disrepair when the landlord served its counter-notices, the tenant had carried out repairs by the date of the trial.
As for Ground (b), although the tenant had persistently delayed in paying rent, the delays had been minor, and the judge was satisfied that this would not re-occur.
There were other breaches of covenant for the purposes of Ground (c), but these were not substantial.
Having dealt with each ground separately, the trial judge went on to consider them collectively.
The judge concluded that, although the tenant had breached its repairing and payment obligations in the past, its behaviour was not sufficiently serious that it “ought not” to be granted new leases.
The trial judge accordingly ordered the grant of two new tenancies.
The landlord appealed to the Court of Appeal.
The appeal raised two questions:
- When must Grounds (a) to (c) be established – was it the date of the landlord’s notice opposing renewal, the date of the trial or at some other point?
- How should the court approach its value judgment as to whether the tenant “ought not” to be granted a new tenancy?
Material date
The Court of Appeal decided that the date for establishing Grounds (a) to (c) is neither solely the date on which the landlord’s notice of opposition was served, nor the date of trial.
The court should consider all the facts to see if the ground is established, including looking at the position at the date the landlord served its notice opposing renewal and at any point up to the date of the trial.
What happens between those two dates is relevant (for example, if the tenant does or does not remedy the breaches before trial), and might in some cases be decisive, but the court is entitled to look at the tenant’s past behaviour more generally.
For example, if a tenant puts things right by the trial date, but only does so at the very last minute having previously had a lamentable record during the course of the tenancy, this is something the court can take into account.
“Ought not” to be granted
On the second question, the Court of Appeal found that there are various factors that may be relevant to the value judgment as to whether a new tenancy “ought not” to be granted.
The “ought not” assessment should not be viewed solely from the landlord’s perspective. The court is also allowed to consider the tenant’s potential loss of livelihood if a new tenancy were to be refused.
The court is entitled to look not only at the tenant’s past performance, but can take into account its intention and ability to comply with its proposed future obligations.
The court should also not adopt a compartmentalised approach by looking at each of Grounds (a), (b) and (c) individually. Instead, the court is entitled to consider whether, taken collectively, the totality of the breaches could be so significant as to make it obviously unfair to force the landlord to enter into a new lease with the tenant.
The Court of Appeal helpfully clarified a few other points too, including confirming that, for Ground (a), the disrepair does not, strictly, need to be substantial. Minor disrepairs will, however, likely carry less weight when the court comes to decide whether or not to grant a new tenancy.
In addition, although the tenant’s conduct during the renewal proceedings themselves can, in an extreme case, be a reason for refusing a new tenancy, this will be rare.
Court of Appeal decision
The Court of Appeal found that the trial judge had adopted the right approach when exercising their discretion, and they had been entitled to come to the decision to grant new tenancies.
The trial judge’s decision was upheld, and the landlord’s appeal was dismissed.
WolfBite
This judgment suggests that Ground (a) is perhaps wider than previously thought.
Having confirmed that the disrepair does not need to be substantial to come within Ground (a), and that the tenant’s past performance over the whole of the current tenancy can be taken into account, we may see more landlords try to rely on this ground where there may have been only minor disrepairs in the past.
There may be greater incentive for landlords to bolster their position by serving schedules of dilapidations in the run-up to the end of the contractual term. This may be coupled with a notice threatening forfeiture (a section 146 notice) or a notice requiring the tenant to repair failing which the landlord will carry out the works itself and recover the costs as a debt (under a “Jervis v Harris” clause).
There may, in short, be more scope for this ground to be used by landlords for tactical purposes, including to try to avoid having to pay statutory compensation where they might also rely on a no-fault ground.
We might, in turn, see more challenges to the validity of landlords’ opposition notices where tenants suspect those notices were not served in good faith.
