Redevelopment of a commercial property - How easily can I obtain possession from the Tenant?
1. Statutory Right to a Lease Renewal
A tenancy protected by the Landlord and Tenant Act 1954 (the Act) will not terminate automatically at the end of the contractual term if it satisfies the “qualifying criteria”. These are (in general terms):
- The Tenant is occupying the premises as a business;
- The lease has not been contracted out of the Act.
There are different procedures for renewal of a lease under the Act, depending on whether the landlord or the tenant initiates the renewal.
Deciding when to serve any notices will need to form part of a wider tactical approach and should be discussed with your solicitor.
2. Opposition to a Lease Renewal on Redevelopment Grounds
Pursuant to the Act, a landlord can oppose a lease renewal if they intend to demolish or reconstruct the premises which they could not reasonably do without obtaining possession. This is known as Ground (f). There are a number of other grounds available to a landlord but this article will focus on Ground (f).
To satisfy Ground (f), the following points should be considered:
- What works do you need to carry out?
- What is your intention?
- Do you require possession of the premises for the works? and
- Is there a reasonable prospect of carrying out these works?
Ground (f) can only be satisfied if you require possession of the premises to carry out the works. It does not include any proposed works to other parts of the building or property that is not demised to the tenant in question.
3. Intention
To satisfy Ground (f) the landlord must show that it intends to start the works at the end of the current tenancy. The landlord doesn’t need to prove that it is ready to start on the day of termination but within a reasonable period of time afterwards. Further, the intention need only be proved as at the date of any court hearing and not before.
To rely on Ground (f) the landlord must:
- Have a fixed intention to proceed;
- Have contemplated the issues that will need to be resolved; and
- Show that there are not too many hurdles to overcome.
The more advanced the redevelopment plans are, the stronger the landlord’s position will be. The landlord must have a reasonable prospect i.e. ‘a real chance’ of being able to carry out the development. For example, if it was highly unlikely that you could obtain planning permission you could not rely on Ground (f).
4. Court Proceedings
If, after the service of a section 25 notice or a counter-notice, the parties cannot agree on terms, either party can issue a claim to court. If an application to court is not made by the date of termination, the existing lease will come to an end on the termination date and the tenant will no longer be entitled to a lease renewal.
Tactically, the Tenant usually issues the proceedings as its interest is protected by doing so but it is common for landlords to issue the proceedings if they wish to push the process along quickly.
If you are the landlord, it is important to remember that you should have your evidence to satisfy Ground (f) in as complete a form as possible and certainly by any hearing date.
If you are the tenant who wishes to challenge Ground (f), then it is important that you press for evidence and pursue the matter quickly through the courts to see if the landlord truly satisfies Ground (f).
5. Statutory Compensation
If the landlord successfully opposes the renewal of the lease on Ground (f) the tenant is entitled to compensation. The compensation is calculated as a multiplier of the rateable value of the property.
Where the tenant and any predecessor who carried on the same business have been in occupation for business purposes less than 14 years, the compensation is calculated as 1x the rateable value (RV). If the period is 14 years or more, then it is 2x RV. Compensation must be paid when the tenant vacates the premises.
If you have any queries or would like to discuss any points concerning the 1954 Act please do not hesitate to contact either Chi Collins (cyc@cbglaw.co.uk) or Nicole Kalli (nk@cbglaw.co.uk)