After a slight lull since the courts discussed the reasonableness of rent suspension clauses in lease renewals during the COVID pandemic, this year has seen a flurry of Landlord and Tenant Act 1954 (the “Act”) cases. Of particular note are: Sainsbury’s Supermarkets Limited v Medley Assets Limited [2024] and McDonald’s Restaurants Ltd v Shirayama Shokusan Company [2024].
Sainsbury’s Supermarkets Limited v Medley Assets Limited [2024] - An easy way for tenants to defeat ground (f)?
Sainsbury’s, trading as Sainsbury’s Local, occupied premises at 329-331 Kentish Town Road, London, consisting of a basement, ground floor and two upper floors. The landlord sought to redevelop the property and opposed the grant of a new lease to Sainsbury’s under ground (f). The landlord’s original plans were for residential development. It then revised its proposals, planning to refurbish the office space on the upper floors and carry out works to the staircase and the basement (including lowering the basement floor). Crucially, no works were planned to the main part of the ground floor, from which Sainsbury’s traded. As part of the landlord’s argument, they put forward that lowering the floor of the basement would create a ‘floating demise’ that is effectively unusable (on the basis of the decision in Pumperninks of Piccadilly Limited v Land Securities PLC [2002]).
Cleverly, the week before the trial of the preliminary issue, Sainsbury’s moved all operations to the front of the ground floor so that it could argue the landlord could develop around them and therefore not require possession of the ground floor. They also argued that, for the purpose of ground (f), the court could only look at the part of the building occupied at the time of trial, being the holding specified under section 23(3) of the Act. The landlord opposed this, arguing that the holding should be the whole of the property under section 32(2)(b) of the Act.
The court held that the landlord had failed to demonstrate it had a firm and settled intention to carry out the works stated. The element of the argument relating to the floating floor was not considered relevant, as Sainsbury’s traded from the ground floor, so could still continue to trade despite the lowering of the basement floor. Whilst the matter was concluded on this basis, the court provided useful insight into the point regarding the size of the holding to be considered. In this regard, the judge applied the ordinary meaning to the holding under section 23(3) of the Act, being the occupied part of the premises at the time of trial. Therefore, even if the landlord had succeeded in demonstrating intention to redevelop, it would still be compelled to offer Sainsbury’s a new lease of the part of the ground floor it occupied, where works were not being carried out. The judge clarified that section 32(2)(b), pursuant to which a tenant may be required to take a renewal lease of the whole of the original demise (not just the occupied part) did not have any application to ground (f).
Practical points:
- For landlords, do not delay in carrying out development works. In this matter, works had not commenced even two years after the initial projected completion date per the planning documents. This was a key reason for the judge’s finding that the landlord did not have the relevant intention in this matter.
- For tenants, it is worth considering whether it is possible to downsize or move the business into parts of the premises where works are not planned, in the event that a landlord is only looking to carry out works to part of the demise.
McDonald’s Restaurants Ltd v Shirayama Shokusan Company [2024] – Misrepresentation of key facts in obtaining possession under ground (g)
In another lease renewal dispute involving another household name tenant, the landlord, Shirayama, had, back in 2018, successfully opposed the grant of a new lease to McDonald’s at the ground floor and basement of the Riverside Building at County Hall, London under ground (g) (the intention for the landlord to occupy the premises for its own business purposes/residence). This new application by McDonald’s relates to key aspects of the previous lease renewal proceedings including, crucially, the information provided by Shirayama in demonstrating its intention to occupy the premises.
In evidence provided to the court in the previous proceedings, Shirayama intended to occupy the holding through a wholly owned subsidiary, operating a Japanese restaurant known as Zen Bento Box. An undertaking was also given to the court to that effect. The court considered that Shirayama had a firm and settled intention to occupy on this basis. Notwithstanding this, in March 2020, Shirayama opened a restaurant called Aji Restaurant serving Japanese takeaway food (a different business than Zen Bento Box). Further, in February 2021, Shirayama opened an English bakery and coffee shop from the basement of the premises. Upon realising this, McDonald’s issued an application under section 37A of the Act seeking compensation from Shirayama due to having their tenancy terminated on the basis of misrepresented or concealed facts.
The court agreed that, on the basis that Shirayama had based its opposition to a new lease on a set of specific proposals for a specific restaurant, it had deliberately misrepresented its intentions to McDonald’s and had been prepared to say whatever necessary to regain the premises, culminating in its undertaking with which it had no intention of complying. Whilst not being able to order the grant of a new lease to McDonald’s, the court ordered Shirayama to pay compensation under section 37A of the Act, in a sum to be determined.
Practical points:
- Despite the landlord demonstrating a firm and settled intention to occupy the premises for its planned restaurant in the original proceedings, it was clearly fortunate to have succeeded, and arguably ‘played the game’ to obtain a termination order and then decided what it wanted to do with the premises. When conceiving a business plan to run from its own premises, a landlord should consider the plan very carefully at an early stage to ensure there is no doubt on following through with it once possession is recovered. The important factor is the intention to follow through with the plans presented to the tenant and the court, even if such a business may not be likely to be successful or profitable (as in Dolgellau Golf Club v Hett [1998]).
- The law acknowledges landlords may well change their minds, and they are entitled to do so, but in doing so, should be well aware that a change in mind could be used by tenants to show the requisite intention never existed in the first place, as McDonald’s succeeded in doing in this case.
Client Alert 2024-136
