Commercial Tenants have a statutory right to renew a tenancy to which Part II of the Landlord and Tenant Act 1954 (“the Act”) applies, unless the parties have ‘contracted out’ of the Act’s provisions relating to renewal.
A landlord can only oppose a renewal on certain limited grounds, which are set out in section 30 of the Act. One of those grounds is where the landlord wishes to redevelop the property. If the landlord intends to rely on this ground, the landlord must prove its intention to redevelop the property to the satisfaction of the Court.
To show the requisite ‘intention’, a landlord must demonstrate that it has definitely decided to carry out the work of redevelopment and that this decision has a reasonable prospect of being carried into effect. Whether a landlord can satisfy this test inevitably depends on the particular facts of each case and the quality of the evidence. However, generally speaking the landlord must be able to demonstrate that it intends to:
- to demolish or reconstruct the premises comprised in the holding, or
- to demolish or reconstruct a substantial part of premises comprised in the holding, or
- to carry out substantial work of construction on the holding or part of it; and
- the landlord cannot reasonably do the works without obtaining possession of the holding,
The test on ‘intention’ was established in the case of Capocci v Goble  2 EGLR 102 and the most recent reported case on the application of this is the case of Yoga for Health Foundation v Guest  EWHC 2658 (Ch),  1 P & CR D27 Ch D. In Yoga, the property was a substantial house with outbuildings and parkland used by the tenant. Their lease came to an end and the landlord wanted to redevelop and opposed the grant of a renewal lease on the ground that he intended to develop the property.
There was a planning permission to convert the house into two residential units, but this left open the question of what would happen to the outbuildings and in particular whether planning permission could be obtained to change the outbuildings from their current commercial use to residential use.
A second planning application had been made to convert the house and outbuildings into seven residential units, but this was still pending at the original hearing.
There was a policy in the draft local plan, which affected the property, and which allowed change of use from commercial to residential only if commercial re-use would be ‘inappropriate because of access or amenity considerations’.
The tenant had indicated that it was willing to take a renewal tenancy of the outbuildings (without the house) and had shown that there would be no access or amenity problems if it did so. The tenant argued that this showed that there was little likelihood of the landlord obtaining planning permission that would allow residential use on the outbuildings and that this would, in turn, affect the overall economic viability of the landlord’s redevelopment plans to such an extent that the landlord could not demonstrate that there was a reasonable prospect of its plans being put into effect.
In the County Court, the judge did not accept the tenant’s argument, but instead accepted the evidence of the landlord and its expert witness that the ‘two house scheme’ (for which there was planning permission) would be viable.
The tenant appealed the decision of the judge in the County Court due to the uncertainty about what might happen to the outbuildings. Unfortunately for the tenant, the appeal was unsuccessful and the High Court upheld the decision of the County Court: there was sufficient evidence of the landlord’s intention to redevelop, even though a precise scheme had not been finalised prior to Trial.
The decision in Yoga provides an insight into the Court’s application of the test set out in Capocci. The Court may, in certain circumstances, allow the landlord to take possession of the property even where they may be some question marks over part of a redevelopment scheme, provided the Landlord can show that it has decided to carry out the work of redevelopment and that this decision has a reasonable prospect of being carried into effect.
If you are a landlord or a tenant and require advice on the determination of a commercial lease which has not been contracted out of the Landlord and Tenant Act 1954, please do get in touch. Contact Ben Jones, a property disputes partner in our Truro Office (01872 265100).