October 20, 2014

Exploring the grounds for opposing new business leases

In the case of Youssefi -v- Musselwhite, the tenant had applied for a new tenancy and the landlord had opposed the renewal on the basis of grounds (a), (b) and (c) of Section 30(1) of the Act. These grounds state that the tenant should not be granted a new tenancy in view of:

(a) the state of repair of the holding (the tenant having failed to comply with his obligations to repair)
(b) that the tenant has persistently delayed in paying rent, or
(c) that there were other substantial breaches of the tenant’s obligations in the lease.

The County Court held that the landlord had established the grounds and that the tenant was, therefore, not entitled to a new lease. The tenant appealed to the Court of Appeal.

When considering the grounds, the Court of Appeal gave the following guidance:

(a) Repair and maintenance obligations
The Court had to look exclusively at the state of repair of the property that had been brought about by the tenant’s breach and whether the proper interests of the landlord would be prejudiced if a new lease were to be granted. The prejudice to the landlord does not necessarily have to be proved by an adverse impact on rental income or on the freehold value. In this particular case, the landlord was complaining of creeper growth to the rear of the property but the tenant’s obligation to repair was only to the inside of the building as well as their obligation to use the premises in a “tenant-like manner”. The Court held that the combination of these two clauses meant that the tenant wasn’t responsible for removal of the creeper’s growth and the tenant was not in breach - this ground was not made out.

(b) Persistently delay in paying rent
The court confirmed that this ground relates only to the persistent delay in paying rent and nothing else can be taken into account. In this case, the arrears were persistent but minor and both the County Court and the Court of Appeal held that the extent of the arrears and the delay in paying the rent were not sufficient to prevent the tenant from being granted a new lease.

(c) Other substantial breaches of the tenant’s obligations
This section is drafted in much wider terms than (a) and (b) so the Court felt that a broader approach could be used. Not only could the Court consider the substantial breaches but it could also look at other reasons connected with the tenant’s use or management of the premises. In this particular case, the landlord provided evidence that the tenant did not use the premises in accordance with the user conditions for more than three years. The Court of Appeal felt that this was “substantial” particularly when combined with further evidence that the landlord produced that the tenant had prevented him from gaining proper access to the property on numerous occasions.

Consequently, the tenant was not entitled to a new lease.

What does this mean to landlords opposing lease renewal?

This case shows that the Court will, on the rare occasions when lease renewal is opposed, look closely at the wording of the grounds. Landlords who seek to oppose renewal will need to make sure that the evidence that they produce in support is closely targeted to the particular ground on which they wish to rely. The case does, however, also broaden out ground (c). It would now seem appropriate to rely on that ground to bring before the Court other irritating facts of a tenant’s behaviour that have impacted on the landlord, whether or not any quantifiable loss is proved and whether those actions can be fitted within the other specific grounds.

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