Commercial lease extension – Redevelopment as a ground for objection?

As part of our ongoing series on the process of lease extension of commercial properties, Richard Pulford, Senior Associate Solicitor in the Dispute Resolution team, looks at the redevelopment ground for refusal in light of Spirit Pub Company (Managed) Limited and Pridewell Properties (London) Ltd. 

Redevelopment grounds to oppose a lease extension?

We have previously covered the notice procedure for tenancies protected under the Landlord and Tenant Act 1954 (“the Act”) and the grounds in which landlords can oppose the granting of an extension. In the case of Spirit Pub Company (Managed) Limited and Pridewell Properties (London) Ltd, we have another practical example as to the burden of proof required for landlords looking to oppose the granting of a lease protected by the Act, in this case, on the redevelopment ground.

Spirit Pub Company (Managed) Limited and Pridewell Properties (London) Ltd

This case involved a notice served on the landlord by the tenant to request a new lease of their pub. This was opposed by the landlord on the grounds that they intended to re-develop the Property. The plans included 3 new houses in the current beer garden and then for the building itself to be re-configured to allow for residential units above. The tenant countered this claiming that any such works could still be carried out whilst the tenant continued to occupy by virtue of the existing clauses in the lease and so a new lease should still be given. Needless to say, agreement could not be reached, and court proceedings were initiated to determine whether a new lease should be granted.

Findings

The court had to consider whether the plans being proposed by the landlord were genuinely going to get through the hurdles required for the project which in this case involved a very old restrictive covenant, planning permission and funding. 

Whilst the court accepted that the works could not take place with the tenant in occupation despite what had been argued by the tenant, and that the landlord had shown a clear intention to actually carry out the works in question even though they would not be started for 14 months after the lease expiry, the issue of necessary finding had not been sufficiently worked out to warrant a valid objection on re-development grounds. The Landlord could not adequately show that it had a real prospect of obtaining the necessary financing for the project and so it was not viable. The objection was therefore dismissed, and the tenant granted a new lease.

Tactical considerations

This is another example of the landlord needing to do the running to prove their case. It is not sufficient to have an idea of development. All elements need to have been thought through to ensure that if presented, the project was viable at the point it was being considered by the court. Anything less than this and the objection to a new lease would be likely to fail.

It is also worth bearing in mind that this case involved the tenant serving notice first which the landlord then had to react to. It is entirely possible that the landlord was trying to hold off in activating the 1954 Act procedure to a stage when they may have been in a better position to satisfy the conditions required by the judge. However, once the tenant had started the process, the landlord had no option but to respond. This again illustrates the tactical decision making process that goes into either the landlord or tenant initiating the lease renewal process. It is not always the case that once you arrive at the end of the fixed term one side has to serve notice. This can often be the way everything progresses with all parties happy with the security of another fixed term, but if there are other longer term factors that either side are working on, as this case proves, it is important to prepare accordingly, consider the other side’s stance and try to ensure that the respective positions, either the tenant securing a new lease, or the landlord being sufficiently through the process that they could justify one of the grounds for objecting, are protected and viable.

Suitable advice

If you are looking into the possibility of serving notice, responding to a notice or just considering your options, early advice should be taken. Either to address the reasonableness and validity of opposition to the extension or, if an extension is agreed, to ensure that the proposed new terms are suitable. At Boyes Turner, we can advise on all elements of the process. You can contact us at [email protected].