Opposing the grant of a new business tenancy

We’ll now look at each ground of opposition in turn.

In order to successfully rely on ground (a), a landlord must prove to the court that the tenant has an obligation to repair and that the property is in disrepair, in breach of that obligation. The parties would usually each instruct building surveyors to prepare reports on the extent of the disrepair.

For the landlord to succeed, the disrepair has to be “substantial”, and the court would look at all the circumstances when considering whether to exercise its discretion and make an order to terminate the tenancy. This includes the state of repair as at the date of the service of the notice and the date of the hearing.

Ground (a) is a fault ground. Compensation will not therefore be payable to the tenant if it is made out.

If it is to persuade the court to exercise its discretion to oppose the grant of a new tenancy under ground (b), a landlord would need to show that there has been a persistent delay in paying rent.

What this amounts to depends on the facts of the case, and could be, say, a history of substantially late payments, or a few payments having been left unpaid for a long time. A tenant defending a landlord’s claim would need to show that it should still be granted a new tenancy despite the imperfect payment history, e.g. because there is evidence to show its financial position has changed for the better, or because it had good reason previously for delaying payment. It would also be wise for the tenant to try to pay all of the outstanding arrears prior to the court hearing, or to at least propose a viable repayment plan. Ground (b) is a fault ground. Compensation will not therefore be payable to the tenant if it is made out.

A landlord relying on this ground might seek to argue either that there are substantial breaches under the current tenancy (other than breaches falling under grounds (b) or (c)), or that there is a reason connected with the use or management of the holding which means that a new tenancy shouldn’t be granted.

Examples of “other breaches” that a landlord might seek to oppose upon include:

• Breach of the user covenants;
• Breach of the alienation covenants; and
• Breach of the insuring covenants

The breaches need to be substantial, so trivial beaches will not suffice.

An often used example of a reason connected with the use and management of the property that a landlord might seek to oppose upon is prolonged and vexatious litigation waged by the tenant against it. It will be for the landlord in the first instance to persuade the court to exercise its discretion under ground (c) not to grant a new tenancy. The tenant would then need to try to convince the court why a new tenancy should nonetheless be granted.

Ground (c) is a fault ground. Compensation will not therefore be payable to the tenant if it is made out.

Ground (d) enables a landlord to oppose the grant of a new tenancy in circumstances where it can offer alternative premises to the tenant that are suitable for its business and which preserves the goodwill attributable to the existing location.

This can be a useful ground to rely on for landlords with larger portfolios, such as shopping centres, retail parks and high street parades where tenants can be shifted around between similar units in theory without the loss of goodwill.

The size of the alternative premises offered and the facilities and amenities enjoyed by it will also be key factors in determining whether it is suitable. The terms of the landlord’s offer must be reasonable, and the burden is on the landlord to show why the accommodation is “suitable”. The court does not have a discretion to grant a new lease if the ground is made out. There is limited case law on what is required in practice to prove this ground. It’s open to debate, for example, what extent of the costs that the landlord could have to offer to incur as a result of the tenant moving, and whether the offer should be made before any notices are served.

Although there is no fault attributable to the tenant in this scenario, if a landlord successfully opposes the grant of a new lease under ground (d) no compensation will be payable to the tenant.

This ground is much less commonly used.

It applies when a superior landlord seeks to evict an undertenant whose tenancy has been granted by an intermediate landlord, and the superior landlord believes it can obtain a substantially higher rent for letting the property as a whole.

Ground (e) is a no fault ground. Statutory compensation will therefore be payable to the tenant if a landlord succeeds on this ground and no tenant’s “fault grounds” apply.

This is perhaps the most commonly used ground of opposition.

To rely upon ground (f), a landlord must show that, upon the termination of the current tenancy, it intends:

• to demolish or reconstruct the premises comprised in the “holding” or a substantial part of those premises; or
• carry out substantial work of construction on the holding or part thereof; and
• that it could not reasonably do so without obtaining possession of the holding.

Landlords frequently attempt to rely on this ground, and therefore considerable guidance can be taken from case law for its application in practice. Case law makes clear in particular that the landlord’s intention is very important: it has to show that it has a firm and settled intention to demolish or reconstruct the premises or part of them or carry out substantial works of construction, and that it also has a reasonable prospect of achieving that intention.

A landlord’s intention to carry out the works cannot be conditional on whether the tenant leaves voluntarily or not. The landlord must be able to prove its intention to the satisfaction of the court as at the date of the court hearing. Evidence to show that sufficient funding is in place to carry out the landlord’s proposals will be crucial in convincing the court of that intention. It will also be important for the landlord to show it’s ability to obtain possession and access of all areas required to carry out the works, and its ability to obtain all licences, consents and any planning permission that might be required.

A tenant can potentially use s31A of the LTA 1954 to try to defend a landlord’s attempt to rely on ground (f) to oppose the grant of a new lease. To do so it must be willing to accept either a new lease under which the landlord can enter and carry out the development work, or a new lease of only part of the premises. Ground (e) is a no fault ground. Statutory compensation will therefore be payable to the tenant if a landlord succeeds on this ground and no tenant’s “fault grounds” apply.

Under ground (g), a landlord can oppose the grant of a new tenancy if it intends to occupy the premises for the purposes of a business that is to be carried on by it, or if it intends to occupy the premises as its residence.

As with ground (f) in either of those two cases, the landlord will need to convince the court that it has a firm and settled intention to occupy the premises as well as a reasonable prospect of achieving that intention.

The evidence that it will need to provide in support will obviously vary considerably from case to case depending upon the landlord’s intended future use.

Evidence such as proof of funding, business plans, and planning permission to facilitate any required change of use might be useful in that regard.

The landlord must be able to prove its intention under ground (g) as at the date of the court hearing.

A landlord can’t oppose the grant of a new lease under ground (g) if it has held its interest in the premises for less than five years from the date of termination of the existing tenancy set out in the section 25 notice or the section 26 request.

Careful planning in advance is therefore recommended if a landlord is considering opposing on ground (g).

Ground (g) is a no fault ground. Statutory compensation will therefore be payable to the tenant if a landlord succeeds on this ground and no tenant’s “fault grounds” apply.

If a landlord is successful in making out one of the grounds of opposition under the 1954 Act, and the court orders the termination of the tenancy, the current tenancy will usually end three months after the “application is finally disposed of”.

As above, the tenant will be paid compensation upon “quitting the holding” if the opposition is pursuant to a no fault ground

The question of whether a new tenancy should be granted, where the grant is opposed by the landlord, is usually dealt with by the court as a preliminary issue.  If a court finds at this initial hearing that a landlord is unsuccessful in making out its ground/s of opposition to the grant of a renewal lease, the court will order that a new tenancy should be granted.

Consequently, in their statements of case, the parties are likely to set out the terms that they would each propose for a new tenancy of the premises in the event that the landlord’s opposition is unsuccessful.

Another hearing will likely be necessary to determine the terms of that new tenancy if the parties are unable to agree upon them.

You can find out about how the court determines the terms of a new tenancy under the LTA 1954 in our detailed article on that HERE.

Where it is has been unsuccessful, the landlord is likely to have to bear the burden of both parties’ legal costs in relation to its application to oppose the grant of a new tenancy.

It is relatively common for parties to contract out of the security of tenure provisions of the LTA 1954, which then leaves a landlord free to do what it would like with a property at the end of the contractual term, which includes removing the tenant if it will not leave voluntarily.

Many leases are however granted with the protection of the LTA 1954, as there is a significant benefit to tenants of having security of tenure.

The statutory grounds of opposition help balance the consequential risk to landlords of, say, being left with undesirable tenants or premises that ripe for redevelopment. Successful reliance on these statutory grounds can sometimes be tricky and can require detailed strategic preparation.

If tenants are not “at fault”, they may be eligible for payment of compensation when renewal is opposed, which can sometimes be substantial.

In practice, most disputes regarding the termination of tenancies under the LTA 1954 do not go to court, particularly following the input of good professional advisors from a relatively early stage.

We always explore with our landlord clients the merits of their position and the potential likelihood of them successfully proving their opposition to the grant of a renewal lease before we serve any formal notices under the LTA 1954 or the tenancy in question.

We find that this early review helps limit the potential for escalation to court and focuses minds to try to instead achieve a commercial resolution where possible. When acting for tenants, we equally try to assess the strength of the landlord’s position at the outset to try to assist them with planning ahead to minimise any impact of a landlord’s plans on their business.