“To what extent is the decision in S Franses Ltd -v-The Cavendish Hotel (London) Ltd a game changer?”
Following the thought provoking seminar which they gave back in February, the two leading advocates, Joanne Wicks QC and Guy Fetherstonhaugh QC, consider how the Supreme Court’s decision has altered the landscape for landlords and practitioners seeking to rely on ground (f).
The Franses case really shouldn’t be a game changer. Something has gone badly wrong if it’s considered revolutionary to say that a landlord can’t cheat its business tenant of its statutory right to a new tenancy. But since the Supreme Court’s decision came out, property litigators have been prepared to admit what previously was only whispered: landlords have for years – decades – been beefing up their ground (f) schemes of work with artificial additions. Now that has to change. So what can we expect, in this brave new world?
- Cases currently in the system will have to be re-evaluated carefully. Expect applications from tenants to adduce expert evidence to show the schemes being put forward make no commercial sense. Expect some landlords to crumble, others to try to brave it out. Difficult choices need to be made: does a landlord admit that its previous scheme was artificially enhanced, and seek to rely on the genuine core of works which lies beneath? How does the litigator move their client into that position without destroying its credibility? Tenants have hard choices too. How much is a tenant willing to risk on the hope that cross-examination of the landlord’s witnesses at trial might reveal the nugget of gold that it needs?
- Expect a rash of cases exploring the boundaries of the Franses decision. Can the landlord prove an unconditional intention by committing itself by contract to carry out the works, under an agreement for lease or building lease with a new tenant which requires it to construct the scheme however vacant possession is obtained? Expect tenants to challenge such arrangements as shams, documents to show to the court which will be quietly undone if ground (f) is satisfied.
- Expect particular scrutiny of rights of entry: can it be argued that the works which pass the acid test could be carried out within the terms of the existing lease, or under s.31A? I suspect we’re all going to be talking a lot about derogation from grant, and how that principle limits a landlord’s apparent ability to work around the tenant. And do tenants really want new leases if their landlords can seriously interrupt their businesses through a right of entry, charging full rent while they do so?
- Expect a lot of clever property litigators to spend time dreaming up ways around the Franses decision and a whole host of seminars from the property bar with titles along the lines of “The 1954 Act: new tactics in a changed world”!
Joanne Wicks QC appeared with Ben Faulkner for S Franses Ltd.
It is rare for a case on the workings of Part II of the 1954 Act to reach the Supreme Court, and rarer still for a decision to emerge which confounds received thinking. Henceforth, landlords and tenants and their advisers will have to bear this decision in mind when deciding how to approach business tenancy termination. Here are some thoughts concerning the impact that the case is likely to have.
- Immediate possible gain for tenants (and corresponding problem for landlords) who are currently in the middle of contested ground (f) or (g) proceedings – because tenants are now able to raise a further obstacle – the Sumption “acid test” – which landlords are likely to be wholly unprepared to meet, and may indeed be unable to counter.
- Short term gain for tenants (and another problem for landlords) preparing for proceedings not yet issued, because landlords will have to reappraise their redevelopment/occupation schemes, which may lead to delay and increased cost, both of which will profit T and disadvantage L.
- Medium term problem for Ts, Ls and courts, who now face more protracted, and therefore more costly, proceedings.
- Longer term picture for new tenancies is uncertain: Ls who wish to redevelop/occupy, and to be sure of gaining vacant possession for those purposes, may now seek to insist on contracting out instead, to the disbenefit of both parties (Ls, because the rent may be lower as a result; Ts, because they will have less security of tenure).
- But good news for professional advisers, who now have an entirely fresh area of advisory and contentious work to grapple with, 65 years after the introduction of the 1954 Act.
Guy Fetherstonhaugh QC appeared with Nicholas Taggart for The Cavendish Hotel (London) Limited.