What reasons could a Landlord dispute a commercial lease extension?

Richard Pulford, Senior Associate Solicitor in the Dispute Resolution team, looks at the statutory extension process and how and why a landlord can oppose to a new lease being granted.

The lease extension process

Where a landlord is getting to the end of an initial fixed term with a commercial tenant, they will need to consider their options. Often this consideration will be quite quick. The tenant is paying the rent and at least adequately performing their obligations under their lease, and so a lease extension is proposed. The main sticking point tends to be how much rent should be considered ‘market rent’ however, the process is more straight forward. We covered the process of a landlord serving notice on our previous blog. However, there may be reasons why this may not be an attractive route for the landlord and vacant possession is instead required. If the lease is governed by s24-28 Landlord and Tenant Act 1954, as many are, then the tenant has an automatic right to extend, that is unless the landlord can successfully argue one of the statutory exemptions.

Section 30(1) Landlord and Tenant Act 1954

S30(1) sets out the exemptions. There are tenant fault grounds which are grounds A (property in disrepair), B (persistent delay in payment of rent by the tenant) and C (the tenant is in breach of another obligation under the lease). Grounds D-G cover no fault grounds i.e. the tenant has not done anything wrong, but for another reason, the landlord needs to recover possession. This covers, where the landlord is able to provide suitable alternative accommodation (ground D), where the tenancy was created by a sub-letting and the superior landlord requires possession (ground E), where the  landlord intends to re-develop, and it would not be possible for the tenant to remain in occupation (ground F) and where the Landlord intends to recover possession for their own use (ground G). Each of these grounds comes with its own nuance/evidentiary burden, and so early advice is required if this is the landlord’s intention. Without one of these grounds being suitably made out, irrespective of how much the landlord wants possession, they will not be entitled to it. It is worth noting that if one of the no-fault notices are relied upon, the tenant will be entitled to compensation based on the ratable value of the property dependent on the amount of time that the tenant has been in occupation, but that is a topic for another day.

Gill (as trustee of the Gillcrest UK Pension Scheme) v Lees News Ltd - Case example:

When relying on a ground for opposition, the specific case details are important. However, to provide some context as to how one of these grounds form opposition worked in practice, we look back to the recent example of Gill (as trustee of the Gillcrest UK Pension Scheme) v Lees News Ltd:

In this matter, the tenant (Lees) applied for a new tenancy by service of a notice under section 26 of the L&T Act, but the Landlord (Gill) opposed citing grounds A, B and C. This reliance was challenged by the tenant and court proceedings were initiated to force the grant of a new lease. Crucially, before the hearing, the tenant also then remedied the disrepair that had been complained of by the Landlord.

Without going into too many details of the case, on appeal, the judge determined that it is not just on the date of the hearing that is important (although this is often decisive). So, if the tenant has remedied the breaches by the time of the hearing, the court can look at the cumulative and ‘lamentable’ record of performance throughout the tenancy.

There are three strands important to whether the tenant ‘ought not to be granted a new tenancy’:

• The breaches should not be considered as individual breaches but looked at as a collective. Multiple smaller breaches that may not be enough by themselves to warrant opposing, but when put together with other breaches can be;
• Is it fair to the Landlord to require them to grant a new tenancy? The court can also consider hardship to tenant.
• Tenant’s conduct throughout litigation is important and can be added as a reason to oppose in extreme circumstances.

Conclusion

It should be noted that the evidentiary burden is mainly on the landlord. They are the ones opposing a statutory entitlement to a new tenancy and so if there is doubt about the grounds being relied upon or the plans/feasibility of the project (in the event of redevelopment being argued), it is likely that the tenant will be granted their new lease. Nothing should be taken as a guarantee, and both parties should be well-prepared to answer a detailed line of questioning to justify their respective stances.

Lease extension advice

If you are looking into the possibility of going through the lease extension/opposition procedure, early advice should be taken. There will need to be preparation ahead of time and gather the necessary evidence to determine the plausibility of the grounds being proposed, being successful at trial. At Boyes Turner, we can advise on all elements of the process. You can contact the dispute resolution team on [email protected]. Alternatively, read further on our residential property and property disputes services.