In Sainsbury’s Supermarkets Ltd v Medley Assets Ltd, the tenant deployed novel tactics to successfully defeat its landlord’s redevelopment plans and secure the right a new lease under the Landlord and Tenant Act 1954.
Facts
The facts of this case are not too dissimilar from many cases that we regularly advise on. Sainsbury’s had a lease of a whole building, it operates a local supermarket on the ground floor. It no longer used the basement. The upper parts, which were previously used as offices are now vacant. The landlord had obtained planning permission to convert the upper parts into residential flats and served a section 25 notice on Sainsbury’s opposing renewal on redevelopment grounds (ground (f)).
The "holding"
One of the specificities of the 1954 Act is that the right to renewal is defined by reference to the “holding” rather than the demised premises. The holding is defined as the premises occupied by the tenant for the purpose of its business.
To satisfy ground (f) the landlord must show that it intends to carry out redevelopment works to the holding and cannot do so without obtaining vacant possession. Importantly what constitutes the holding is considered by the Court at the date of trial, not when the section 25 notice is served.
This may be why the landlord at some point after service of its section 25 notice changed its development plans to lower the floor of the basement and widen the staircase from the ground floor to the upper floor, and instead of converting the upper parts into flats (which are not occupied), refurbish them for office use.
This new scheme would encroach into a small part of the ground floor (only about 26 sq m) used by Sainsbury’s for storage. Shortly before trial, Sainsbury’s moved out of the area in question so that this no longer formed part of the holding. The idea being that the landlord could no longer argue that it intended to carry out works to the holding and therefore did not satisfy ground (f).
Under section 32(2) of the Act, a landlord can require the tenant to take a new lease of the whole of the premises and where this is the case, the holding is construed as the whole of the property. The landlord sought to rely on this provision to argue that the holding should be treated as the whole of the premises, since it had invoked section 32(2) in the event that Sainsbury’s were granted a new lease.
The Court disagreed and found that for the purpose of ground (f) the holding is limited to those parts of the premises occupied by the tenant. This meant that the landlord’s works to the basement and the now vacated ground floor area were not works to the holding and ground (f) was not satisfied.
Landlord's intention
This was however not the only reason why the landlord’s case failed. The Court was not persuaded that the landlord had evidenced a “firm and settled intention” to carry out the works even if the tenant left voluntarily.
The landlord had provided extensive information showing its proposed plans, including planning consent, but in the eyes of the Court it had not done much to advance the development. Although the landlord had already spent £200,000 in preparatory works, this was diluted by the fact that most of these costs related to the conversion of the upper floors to residential, a scheme that the landlord had since abandoned. Expert evidence also showed that there were significant issues with the proposed scheme, including access and compliance with fire regulations, which the Court considered made the landlord’s plans unrealistic.
One way for a landlord to establish its intention is to provide an undertaking to the Court to carry out the works. In this case no such undertaking was offered until 3 days into the trial (and after the landlord’s witness had been cross-examined on the lack of undertaking). The Judge found this was too late and refused to accept it.
Conclusion
Not every tenant will be able to move out of part of their premises to reduce the “holding” so as not to be affected by their landlord’s proposed works. But this is a potential strategy that both tenants and landlords need to be aware of.
One point that the Judge seems to have taken issue with was the fact that the landlord changed schemes after service of its section 25 notice. This probably was not helped by the landlord’s witness who the Judge found to be extremely evasive. But if the Courts now see a change of scheme as evidence of an artificial intention, this goes against the long-established principle that a landlord does not need to prove its intention until trial.
