Landlords acquiring interests in commercial property with mid to long term plans to occupy the premises for their own use need to be aware of the provisions of the Landlord and Tenant Act 1954 (“the Act”) when there is a tenant protected under the Act in occupation. This is still the case when the landlord is itself a tenant, and not the freeholder.
The recent case of Frozen Value Limited v Heron Foods Limited  highlights a pitfall which a head tenant encountered when trying to take over a property for its own use on the expiry of its tenant’s lease.
Under the Landlord and Tenant Act 1954 (“the Act”) a qualifying tenant can serve notice on its landlord requesting a new tenancy. The landlord can oppose the granting of a new tenancy but only on very restricted grounds set out in section 30 (1) of the Act. These include the landlord wanting to occupy the premises for its own business on termination of the existing tenancy.
Put simply, in order to oppose the request for a new tenancy the landlord must have held their interest as landlord (whether as owner of the freehold or a superior leasehold interest) for a period of five years ending with the date on which the current tenancy terminates.
The reason for the five year period is firstly to avoid the mischief of a new landlord taking over a lease towards the end of its term and seeking to occupy the premises for its own purposes and, secondly, to prevent landlords whose interests are about to expire from preventing tenants from seeking new leases.
The issue the court looked at in this case was whether the landlord had to be the “competent landlord” as defined in the Act for the entire five year period. The reason the issue arose was because the Act specifies that a landlord will cease to be a “competent landlord” when their own lease only has 14 months left to run.
Frozen Value Limited (“Frozen”) held an underlease of a property from a company called Your More Stored Limited (“YMS”). Frozen’s underlease was due to expire on 14 July 2010. YMS’ landlord under the head lease was Kwikfine Limited (“Kwikfine”) and the lease between YMS and Kwikfine was due to expire on 17 July 2010.
YMS got into financial difficulties and so its lease was transferred to a company called Heron Foods Limited (“Heron”) on 7 June 2005. Heron therefore became Frozen’s landlord. It remained Frozen’s “competent” landlord until 17 May 2009 when there were only 14 months of its own tenancy still to run.
In January 2010, Frozen served a notice requesting a new tenancy (on Kwikfine because Heron was not the competent landlord). Shortly afterwards Kwikfine granted a new lease to Heron starting on 18 July 2010, i.e. immediately following the expiry of the existing lease. Heron therefore became the competent landlord again (because its interest has more than 14 months to run). It immediately took steps to oppose Frozen’s application for a new lease on the ground that it wanted to occupy the premises for its own use.
The case reached the Court of Appeal on the issue of whether a period of time during which a landlord was no longer the competent landlord should be taken into account when calculating the five year period.
The Court of Appeal concluded that the nine month break in Heron’s position as competent landlord (between 17 May 2009 when there were only 14 months of its tenancy left and 24 February 2010 when the new lease was granted) was fatal. It was therefore unable to challenge Frozen’s application for a new lease.
The Court stated that a landlord could take into account successive interests in a property to reach the five year requirement provided that at all times during that period it was the competent landlord. Whilst Heron was able to satisfy the court that it held a continuous succession of leasehold interests for a period of five years it was not competent landlord at all times and so its claim failed.
It is important that landlords are aware of the provisions of the Act if they plan to redevelop or use property that is occupied by a tenant who is protected by the Act. This is particularly important where the landlord’s own interest may be nearing expiry. It was recognised by the court that landlords who are aware of the relevant issues can overcome the problem that existed in this case. If the landlord has a tenant who is protected by the Act but their own interest is a leasehold which is approaching expiry, the landlord can maintain its status as competent landlord by ensuring it obtains the grant of a new lease or acquires the freehold before the day on which its lease has less than 14 months to run.
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Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.