Frozen Value Limited v Heron Foods Limited

 

The Message

A landlord must be competent to oppose statutory lease renewals.

The Case

Frozen Value Limited v Heron Foods Limited [24 April 2012] concerned a landlord’s opposition to a tenant’s application for a new business tenancy under Part II of the Landlord and Tenant Act 1954. The statutory ground of opposition, known as “ground (g)”, was that the landlord intended to occupy the property for the purposes of its business. The Act provides that a landlord cannot oppose on that ground if its interest in the property was purchased or created in the five years before the end of the tenant’s lease (the five year rule). The issue was whether the landlord was prevented from opposing, because it was claimed its interest was created during that five year period.

In June 2005, Heron became tenant under a headlease of premises expiring on 17 July 2010. An underlease of part had been granted expiring on 14 July 2010. The tenant of the underlease was Frozen. On 27 January 2010 Frozen served on Kwikfine Limited, the freeholder, a statutory request for a new tenancy of its premises. The reason why the request was served on Kwikfine rather than its immediate landlord, Heron, was that when the request was served Heron was not the “competent landlord”. A landlord is not treated as the “competent landlord” for the purposes of the Act, although it may be the tenant’s landlord, if the landlord itself has a leasehold interest which will end within 14 months. That was the case here.

On 24 February 2010, Kwikfine granted a new headlease to Heron for 15 years beginning on 18 July 2010. Heron became Frozen’s competent landlord at that point and served a counter-notice opposing Frozen’s application for a new underlease on the basis it wanted to occupy the premises for its business after the end of Frozen’s first underlease.

Frozen did not accept that Heron was entitled to oppose on ground (g). Frozen lost in the County Court and appealed to the Court of Appeal where it was successful by a two to one majority.

The problem for Heron was that for the last 14 months of its headlease, it was not the “competent landlord”. Although, if a competent landlord has held a series of leasehold interests, those interests are aggregated for the purpose of seeing whether the five year rule is satisfied, Heron’s issue was that it had ceased to be the competent landlord for a number of months during the five years.

The Court had to decide whether that period from 17 May 2009 (14 months before the end of Heron’s headlease) until 24 February 2010 (when Heron was granted the new headlease) prevented Heron opposing Frozen’s application on ground (g). In the first decision on this point in the Act’s history, the Court held that Heron could not oppose on ground (g) where it had ceased to be the competent landlord for some of the five year period.

The legislation is aimed at landlords whose interest is soon to expire, but who seek to assert statutory rights against the tenant applying for a new lease. The temporary interruption of Heron’s status as competent landlord during the five years made it impossible to aggregate Heron’s interests under its successive leases. For the purposes of calculating the five years, time started to run again on the date of its new headlease when it became the competent landlord.

For almost all purposes under Part II of the Act, someone who is not the competent landlord is not the landlord at all. In that sense, Heron was not the landlord at all between 17 May 2009 and 24 February 2010.

As a result, Heron was not entitled to oppose Frozen’s underlease application on ground (g). Since Heron had pleaded no other grounds of opposition, the Court stated that a new underlease should be granted to Frozen.