Bad behaviour by business tenants can lead to loss of their right to renew their Leases.
The Court of Appeal has upheld a Judge’s decision that it would be unfair to the landlord to grant the tenant a new tenancy in light of the tenant’s substantial breaches of the Lease.
Ms Youseffi was the tenant of a dwelling house shop and premises in Winchester under a Lease that expired on 31 March 2009. The Lease was protected under the Landlord and Tenant Act 1954 but the landlord, Mrs Mussellwhite, opposed renewal because of the tenant’s breaches of covenant and general poor conduct. The landlord wanted to recover possession of the premises instead so it could be sold.
The Judge at first instance held that the tenant was in breach as to repair and paying rent as well as to failing to trade from the premises in accordance with Use Classes A1 and A3. Rather than use the premises as a shop or for the sale of food to the public, the tenant just used it for preparation of food for sale elsewhere. In addition, the tenant had been persistently obstructive in allowing access for the landlord’s surveyor to inspect the condition of the premises.
Although there had been a persistent delay in paying rent, the arrears had always been relatively small so the Judge held the breach was not substantial enough that the Court ought not to grant a new tenancy on this ground. However, he thought the other breaches were substantial enough even though they did not substantially prejudice the landlord’s rental income or the capital value of the premises.
On the Appeal, the Court considered what criteria should be applied when the Court considered whether it ought to grant a new tenancy or not where the tenant was or had been in breach? In particular, was it necessary for a landlord to show that the grant of a new tenancy would cause it real prejudice in the future or would it be sufficient to simply establish it would not be fair to continue the landlord and tenant relationship because of the tenant’s past performance and behaviour?
The Court held that it had a general discretion which involved considering whether the proper interests of the landlord would be prejudiced if a new tenancy was granted to the particular tenant. Those interests could be prejudiced by the landlord having to continue dealing with the tenant under a new tenancy in light of the tenant’s past breaches and behaviour. It was not necessary for a landlord to prove actual loss would be suffered although this was likely to be the case in most instances.
Whilst the Court disagreed with the Judge that there was any, or any substantial, repairing breach, it did regard the failure to trade under Classes A1 and A3 as a substantial breach that was prejudicial to the landlord even though no quantifiable loss may have been suffered and it also agreed with the Judge that the past refusals to provide access to inspect undermined the landlord and tenant relationship.
The Court agreed with the Judge that to expect the landlord to continue with the tenant in light of her persistent and deliberate refusal to comply with these terms of her tenancy would be unfair to the landlord and prejudicial to her interests. It noted the tenant had not sought to trade as required despite having considerable time to have remedied this breach before the first Court hearing.
Accordingly, albeit over 5 years since the contractual term of the Lease ended, the tenant has to vacate the premises and the landlord will finally be able to sell the property with vacant possession.
A business tenant’s valuable right to renew can be lost due to bad conduct.
A landlord has to prove a substantial breach but not actual loss.
It can, however, take considerable time to successfully oppose renewal.