S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62

1. On 5 December 2018 the Supreme Court handed down judgment in S Franses Ltd. For anyone advising landlords or business tenants in relation to security of tenure under the Landlord & Tenant Act 1954 (“the 1954 Act”) the case is a must-read: it introduces a whole new element to the test when establishing whether a landlord has the requisite intention to redevelop under ground (f), which may prove harder for landlords to satisfy.

The facts

2. The facts of S Franses are extraordinary, but the decision has wide ramifications for many ground (f) cases.
3. S Franses Ltd (“the Tenant”) has premises on the corner of Jermyn Street and Duke Street, which it holds under two leases and which it occupies for the purposes of its business as a textile art dealership and consultancy, specialising in antique tapestries and textiles. Most of the rest of the building is a hotel, run by the Tenant’s landlord (“the Landlord”). The tenancies benefit from security of tenure under the 1954 Act. After the leases came to an end, the Tenant requested new tenancies, which the Landlord opposed on ground (f), the redevelopment ground.
4. The Landlord put forward various schemes of work. The first involved combining the premises with the neighbouring hotel bar. The second involved creating two new retail units from the premises and part of the hotel. However, from the Landlord’s perspective there were two problems with this second scheme. First, it needed planning permission, both for the external works necessary to create a second entrance from the street and for a change of use. But its planning application was recommended for refusal. Secondly, its solicitors advised that the works involved were insufficiently substantial to satisfy ground (f). The scheme of work that the Landlord eventually relied upon was designed to address both of these issues. It took the plan for two retail units and stripped out all the external works for which planning permission was required. It also added various additional works, some of which were entirely contrived, such as artificially lowering the basement floor, repositioning smoke vents for no reason and demolishing and rebuilding an internal wall.
5. The proposed scheme had no practical utility, and would have been not just pointless, but also expensive and destructive, because it would have rendered the premises incapable of lawful use and occupation. The space created by the works could not be lawfully used because, for planning purposes, the premises had a ‘sui generis’ use, and the hotel had ‘C1’ use: it was impossible for a single user to use both parts simultaneously. Moreover, one of the units would have no entrance from the street and the wall between the two proposed new units would stop two metres short of the shopfront.
6. The natural inference was that the Landlord did not genuinely intend to carry out the works. However, the Landlord explained its reasoning: it wanted the Tenant out of the premises, and was prepared to do whatever it took to achieve that aim. The works were designed precisely because they were required to obtain possession. In an attempt to put matters beyond doubt, the Landlord also offered an undertaking to the Court that it would carry out the works, once vacant possession had been ordered. However, the Landlord’s evidence was that if the works were unnecessary to obtain vacant possession (e.g. because the Tenant vacated voluntarily), or if the works could be carried out under a right of entry with the Tenant remaining in possession, it would not carry them out.
7. There were therefore three important features:
   • The Landlord demonstrated that if it needed to carry the works out to obtain vacant possession it would definitely do so: its intention was genuine, firm and settled in that regard.
   • The Landlord’s sole purpose in carrying out the works was to get the Tenant out. This was not a case where the works themselves had any benefit. They were purely a mechanism to secure vacant possession.
   • The Landlord’s intention was conditional upon the works being necessary to obtain vacant possession. If the Tenant vacated voluntarily the works would not be carried out.

The Supreme Court’s decision

8. The Supreme Court decided that the Landlord’s intention was not of the nature or quality required by ground (f). That is because it was conditional in a disqualifying way, namely the works were only intended if they were necessary to get the Tenant out. If such a conditional intention was sufficient, tenants’ security of tenure would be undermined, because a landlord would simply be able to ‘buy out’ the tenants’ security of tenure by designing a scheme of works it would never otherwise carry out, serving no legitimate policy purpose. The interest of a landlord which ground (f) protects is its interest in redevelopment, not its interest in obtaining vacant possession, which is the very thing which the Act is designed to restrict. Consequently, Parliament cannot have intended a landlord which intended to carry out redevelopment only if it was necessary to satisfy ground (f) to be able to prevent its tenant obtaining a new tenancy.
9. Lord Sumption said at [19]:

“the landlord’s intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy, so that the tenant’s right of occupation under a new lease would serve to obstruct it. The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim. The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily.”

10. This new test applies both to the scheme as a whole, and to each element of the scheme, separately. It is to be assessed at the date of the trial.
11. By the time of the trial, it might be crystal clear that in fact the tenant is not going to leave voluntarily, and so in fact there is no prospect of such a condition being unfulfilled: the landlord will carry the works out. Their Lordships concluded that even in such a case, if the landlord’s purpose is to get rid of the tenant, demonstrating that, if asked to consider what it would do, the landlord would not carry out the works if the tenant voluntarily vacated (however unlikely that might be), the intention requirement in ground (f) will not be satisfied. That is because the fact that the landlord is only proposing to carry out the works to get rid of the tenant reveals that its intention is qualified in an impermissible way (see [21] and [29]-[30]). As Lord Briggs said at [30]:

“there is nothing hypothetical or counter-factual about testing the type or qualify of the landlord’s intention, as at the time of the hearing, by an analysis of the purpose or motive behind it”.

12. In reaching its conclusion, the Supreme Court held and/or confirmed that:
    • The Act does not ask directly what a landlord’s purpose or motive is. It asks what the landlord’s intention is. But a motive to remove the tenant is evidentially relevant, not only in showing that the intention might not be genuine, but also in showing that it may be conditional in the impermissible way.
    • It is entirely up to the landlord to decide what works it wishes to carry out, whatever their utility. However, much like motive and purpose, utility may be evidence of whether the landlord’s intention is genuine, firm, settled and unconditional.
    • There is nothing wrong with the original inspiration for the works, or part of the motivation behind doing the works, being to get rid of the tenant. That motivation only becomes an issue where the landlord would not carry out the same works if the tenant vacated the premises voluntarily (see [31]).

Ramifications in other cases

13. Every ground (f) case will now need to consider this new Franses test: would the landlord still carry out the same works if the tenant left voluntarily? The question has to be asked in relation to each element of the proposed works. Where a landlord has ‘beefed up’ a scheme of works in order to ensure that they are sufficiently substantial to meet ground (f), or where a landlord is proposing works without any obvious use, its motive and purpose is likely to come under close scrutiny.
14. However, landlords who have put together a scheme of works because the works in and of themselves, and in their entirety, are desired come what may, will have nothing to be concerned about, provided that they are able to evidence that that is their intention.

 

JOANNE WICKS QC

BEN FAULKNER

Joanne Wicks QC and Ben Faulkner were instructed by David Cooper of David Cooper & Co on behalf of the tenant, S Franses Ltd.

For the judgment, click here.