Lease termination for ‘own occupation’: Court of Appeal clarification

29th April 2016

The Landlord and Tenant Act 1954 (the Act) gives security of tenure protection to tenants in occupation of premises for the purposes of a business. That effectively means that landlords can only recover possession of such premises if and when they can establish, at court if necessary, one or more of the statutory grounds for repossession which are set out in section 30 of the Act. Section 30 (1) (g) provides that a landlord may oppose the grant of a renewal lease, or make an application for termination of a protected tenancy without the grant of a new lease, if it intends to occupy the premises itself, for the purposes of a business carried on by it or as its residence.

In the recent case of Gulf Agencies v Ahmed [1], the Court of Appeal provided a useful reminder of some of the key principles underpinning the ‘own occupation’ ground for possession.

Establishing intention

For a landlord to successfully establish that it is entitled to recover possession of business premises from a tenant with security of tenure protection because it wishes to occupy the premises itself, it must prove the necessary legal intention. The following are essential elements of the requisite intention:

• The landlord must have a firm and settled intention to do that which he says he intends to do. His planned project must have moved “out of the zone of contemplation… into the valley of decision” [2].
• The landlord must have a reasonable prospect of bringing about the desired result.
• The first limb of the intention test is subjective and turns on whether the particular landlord and his plans are to be believed.
• If a court does not believe a landlord, it must make a clear finding to that effect and it must give a clear statement of the reasons for that finding [3].
• The second limb is objective and is concerned with whether the landlord’s intentions can actually be achieved. That will turn on, for example, planning permissions and permitted use, financial and factual feasibility, and the like.
• To determine the objective limb, the court will ask whether a reasonable man would, on the evidence, believe there was a reasonable prospect of the landlord carrying out the planned occupation; and whether there is a “real chance, a prospect strong enough to be acted on… as opposed to a prospect that should be treated as merely fanciful or as one that should sensibly be ignored by a reasonable landlord” [4].
• The intention “must not be fleeting or illusory… [and] must be more than short term” [5].
• What is short term will depend upon the facts of the case and whether or not occupying for a particular amount of time is commercially sensible is not a matter for the court (unless it serves to undermine the genuineness of a landlord’s subjective intention).

WM Comment

This case does not make new law, but it is a useful tool for landlords and practitioners alike because it pulls together much of the relevant case law and key legal principles with which a landlord will need to comply before it can recover possession of secure business premises to occupy for itself. In addition, the case clarifies that many of the same issues apply under section 30 (1) (g) of the Act, as apply in cases where a landlord seeks to recover possession in order to redevelop [6].

Armed with an understanding of these important legal principles, landlords would be well advised to build their case on intention to occupy (or, for that matter, on intention to redevelop) at the earliest possible stage when they contemplate terminating a secure business tenancy and/or objecting to a tenant’s request for a renewal lease. If a landlord can demonstrate, with evidence, that it has the requisite intention and means to carry out its plans, a tenant is more likely to accept the landlord’s word and to depart amicably, without the need for court proceedings.

If you would like any advice or assistance in connection with any business lease or lease termination issue, please do not hesitate to contact a member of Walker Morris’ Real Estate Litigation team.

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[1] [2016] EWCA Civ 44
[2] Cunliffe v Goodman [1950] 1 All ER 720; Fisher v Taylors Furnishing Stores [1956] 2 QB 78
[3] A finding of dishonesty is obviously a very serious thing for a landlord (or indeed for any person), hence the need for a clear and reasoned finding.  In fact, it is also an issue for a tenant: a reasoned finding of dishonesty gives rise to the entitlement for a tenant to claim its costs of the litigation on the indemnity basis (i.e. not subject to potential reduction on grounds of ‘reasonableness’).
[4] Gregson v Cyril Lord Ltd [1963] 1WLR 41; Cadogan v McCarthy & Stone Developments Ltd [1996] EGCS 94
[5] Patel v Keles [2009] All ER (D) 141 (Nov)
[6] I.e. under section 30 (1) (f), the ‘redevelopment’ ground