Court rejects Ground F argument in opposed lease renewal case

The County Court in London has handed down its judgment in an opposed lease renewal case between Spirit Pub Company (Managed) Limited and Pridewell Properties (London) Ltd relating to a public house known as “the Railway Bell” in South Woodford.

Pridewell, as landlord, opposed Spirit’s request to renew its lease of the premises on the basis that Pridewell intended to redevelop the premises, citing Ground F of section 30(1) of the Landlord & Tenant Act 1954.

The Court had to decide whether Pridewell had a firm and settled intention to carry out the development and also whether it had a genuine prospect of surmounting various hurdles in order that the development could be put into effect within a reasonable time after contractual expiry of the existing lease.

Background

The premises has been in operation as a public house for a number of years with Spirit taking an assignment of the lease in 2007. 

Pridewell acquired the freehold interest in the Premises in July 2014.

With expiry of its existing lease approaching, Spirit served a request for a new business tenancy of the premises on Pridewell in July 2023. Pridewell, in turn, served a counternotice opposing the grant of a new tenancy on various grounds, including the intention to demolish or reconstruct the premises (Ground F). 

Pridewell argued that the proposed redevelopment, involving the construction of three mews houses within the existing beer garden and reconfiguring the public house to accommodate residential units on the upper floors, could not reasonably be carried out without obtaining possession of the premises.

Spirit rejected Pridewell’s stance under Ground F, primarily arguing that the works could be carried out with the tenant in situ using the contractual mechanisms within the lease and Pridewell does not have a realistic prospect of overcoming the necessary hurdles and commencing the redevelopment within a reasonable time after expiry of the current lease. 

Decision

Key considerations for the Judge included:

• the existence of a restrictive covenant dating back to 1870 which had the potential to impact Pridewell’s plans, the full extent of which was proving difficult to locate and therefore its salient terms unascertainable; and
• the local authority’s pre-application advice that suggested that the Council would object to the demolition of the public house, citing its prominent location and cultural significance.

Expert witnesses, including building surveyors and planning consultants, provided detailed reports on the proposed works and their feasibility.

The Court had to consider whether Pridewell had a firm and settled intention to carry out the development and whether it had a genuine prospect of surmounting hurdles such as planning permission, the restrictive covenant and funding such that it would satisfy the requirements of Ground F.

The Judge determined that the landlord's proposed works would involve substantial alterations to the premises, including the demolition of existing structures and the construction of new ones, such that they could not be carried out with Spirit in situ.

The Judge also concluded that Pridewell had demonstrated a firm intention to carry out the redevelopment and that its intention was not “conditional” as per the Supreme Court’s judgment in S Franses Ltd. v. The Cavendish Hotel (London) Ltd. [2018] even taking into account that the works would not be commenced until at least 14 months after the existing tenancy came to an end.

However, the Judge considered that Pridewell had not shown a real prospect of being able to obtain the necessary funding required to facilitate the development.  As a result, Ground F was not established and Pridewell’s opposition to Spirit’s request for a new tenancy failed.

Implications

This judgment highlights the complexities involved in opposed business lease renewals and the importance of considering both legal and practical aspects of proposed redevelopments.

Practitioners must bear in mind that, in this instance, the Judge held that Ground F was not established due to one very narrow point – that the landlord had not been able to sufficiently demonstrate that it would be able to obtain funding for the development.

Landlords and tenants should note that:

• the ruling considers a lag period of 14 months after lease expiry for the works to be commenced to be reasonable and within the statutory tolerance under Ground F; and
• a contractual right of re-entry was held to be insufficient in enabling the landlord to carry out the proposed works.

It is not yet clear whether the landlord intends to lodge an appeal.