Court considers discretionary grounds of opposition to a proposed lease renewal under the Landlord and Tenant Act 1954

What matters

What matters next

The court has considered the discretionary grounds of opposition under the Landlord and Tenant Act 1954 (“the 1954 Act”) in the recent case of Gill v Lees News Ltd [2023] EWCA Civ 1178.

In the case, the landlord - Mr Gill - served counter notices in response to section 26 requests for renewal tenancies pursuant to the 1954 Act served by the tenant, Lees News Ltd. 

The counter notices specified various grounds of opposition to the proposed renewals pursuant to Section 30(1) of the 1954 Act:

a) Breaches of the tenant’s obligations relating to the state of repair of the holding;
b) Persistent delay by the tenant in paying rent;
c) Other substantial breaches of the tenant’s obligations under the current tenancies, which meant that the tenant “ought not to be granted a new tenancy”; and
f) On termination of the current tenancies, the landlord intended to demolish or reconstruct the holding and could not reasonably do so without obtaining possession. 

At first instance, the trial judge held that at the date that the landlord’s counter notices were served, the holding was in substantial disrepair and the tenant had persistently delayed in paying rent - albeit by a few days each time. 

However, by the date of the hearing the disrepair had been remedied, and the other breaches of lease covenant were minor. The trial judge was persuaded that further breaches of lease covenant would not occur and held that new tenancies ought to be granted. The landlord appealed.

Court considerations on appeal

Opposition under ground (f) had failed at first instance, meaning that on appeal only the discretionary grounds (a), (b) and (c) were under consideration. 

The questions on appeal were:

1. At what date do the grounds of opposition need to be made out?

The Court of Appeal held that under ground (a) there was no fixed date for assessing the state of repair of the holding, and instead it was a case of looking at the history of repair during the term of the lease. 

This approach aligns with that taken in relation to grounds (b) and (c), which enable the court to consider the tenant’s conduct throughout the course of the lease term.

A “lamentable record of performance” during the lease term, but which is rectified at the last minute before trial, will not necessarily preserve the tenant’s right to an automatic renewal lease. The court noted that it was fair to consider remedial steps taken by the tenant in relation to disrepair of the holding, after the counter notices were served and prior to the hearing. 

It is also worth remembering that unlike the “sweeper” ground of opposition, (c), ground (a) does not expressly require that the breaches of the repairing obligations are substantial.

2. Can the court use - and to what extent - value judgment in considering whether the tenant “ought not” be granted renewal tenancies?

The court considered the grounds separately in turn, and then collectively, to consider all the material circumstances and make a value judgment on the totality of the breaches. Those material circumstances could include the tenant’s conduct in the proceedings. 

While there was criticism of the tenant’s approach to proceedings, particularly in relation to disclosure regarding the remedial works it was undertaking at the holding, the court was not persuaded that such conduct should deprive the tenant of its rights to renewal. 

In this case, the tenant had undertaken significant and costly remedial works to the holding, which convinced the judge that the tenant now appreciated the need to comply with its repairing covenant, along with the importance of paying rent on time, and was persuaded that the tenant was unlikely to breach its lease obligations again. 

The Court of Appeal dismissed the landlord’s appeal and granted renewal tenancies to the tenant.

Analysis

This case is a useful clarification on the specific point in time - or not, as is the case - at which the court considers the state of repair of the holding for the purposes of the landlord relying on ground (a). 

The court can instead consider the history of the state of repair throughout the lease term, which clearly aligns with the ongoing obligation of the tenant to keep the property in good and substantial repair in the current case. 

The position differs somewhat from the relevant date for making out ground (f), where it was established in Betty’s Cafes v Phillips [1959] A.C. 20, that the relevant date by which a landlord must prove the necessary intention to demolish or redevelop the holding, is at the date of the hearing.

The trial judge’s view that it ought to be able to consider the tenant’s conduct and alleged breaches of covenant cumulatively and throughout the term of the lease, shows the court’s unwillingness to take a compartmentalised approach to considering such matters. 

This, however, does serve as a warning to tenants to ensure that they comply with their repairing covenants and other lease obligations throughout the lease term, but specifically if they intend to exercise their right of renewal pursuant to the 1954 Act. 

Freedom to contract

Whilst not accepted by the trial judge, there was some comment on the apparent breakdown of the landlord and tenant relationship in the case, as a result of the tenant’s “egregious conduct” and how it would be unfair to the landlord if it was forced to contract with the tenant going forward. 

It does again highlight the often complicated dichotomy that the 1954 Act presents between the freedom to contract for the landlord and the protection afforded to a business tenant. Is it fair for landlords? Conversely are there grounds for disturbing the tenant’s rights? These are clearly matters that a court will continue to have due regard to in opposed lease renewal proceedings. 

Considerations

Landlords may utilise discretionary grounds of opposition to a tenant’s renewal request to support avoiding liability for statutory compensation should the tenant be refused a new lease. This issue was analysed in Wilberforce Chambers' review of the case - Joanne Wicks KC represented the tenant. 

It is clear from the case that the court’s discretion in these matters reigns supreme.

The landlord will still need to have sufficient reasoning and persuasive evidence to support its contention that it is entitled to rely on those discretionary grounds in its counter notice or section 25 notice. Furthermore, the case reaffirms that such breaches of lease covenant for the purposes of reliance on the discretionary grounds of opposition, must be more than minor. 

Any landlord seeking to rely on discretionary grounds is therefore likely to face an uphill battle and risk a costs award against it if, as in this case, it ends up being unsuccessful.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2024.

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