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Comment on the decision in London Kendal Street No. 3 Ltd v Daejan Investments Ltd 
A landlord may oppose an application by a tenant for a new lease of business premises under the Landlord and Tenant Act 1954 (‘the Act’) on a number of different grounds. These are found in section 30 of the Act. Ground (f) deals with the redevelopment of the premises and a landlord must show that they intend to demolish or reconstruct the premises, or a substantial part of the same, and that the works could not reasonably be done without possession being obtained.
Before the decision in S Franses Ltd v Cavendish Hotel (London) Ltd  A.C. 249 (2018), in order to successfully oppose an application by a tenant for a new lease under the Act, a landlord was required to prove at trial: (i) that it had a genuine intention to carry out the works (subjective test); and (ii) that it would practically be able to do so (objective test). The landlord’s motives, the reasonableness of its intentions and the utility of the proposed works were irrelevant, save to be used as material to be used by the court in determining whether the intention was genuine.
In S Frances, the Supreme Court held that the quality of a landlord’s intention was also a relevant consideration by the trial judge, and that the acid test was whether a landlord would intend to do the same works if the tenant left voluntarily. A landlord’s intention had to exist independently of a tenant’s claim for a new lease and could not be conditional on a tenant bringing proceedings for a new lease.
London Kendal Street No. 3 Ltd v Daejan Investments Ltd is the first reported decision in the County Court on the implementation of the hypothetical test of the quality of a landlord’s intention to redevelop the premises.
The tenant occupied 4 suites of a building in Marble Arch. One of the suites, C2, was held for a term of 5 years, whilst the remainder were held for 10 year terms. The tenant provided serviced accommodation from the premises and C2 consisted of the common areas and facilities for its occupiers. The landlord intended on redeveloping the basement at the premises, and indeed had planned on doing so for a number of years, so as to enable it to let them as a commercial unit. The condition of the basement had been deteriorating for a number of years and suffered from severe damp and corrosion. C2 was to be the front entrance and lobby for the new unit.
Although the works had been commenced, they had been paused due to the noise of the works and threats by the occupiers of the ground floor units (including the tenant) of bringing injunctive proceedings. The tenant then brought a claim for a new lease, which was opposed by the landlord. The matter of whether the landlord intended to redevelop the premises was tried as a preliminary issue.
The tenant accepted that that the landlord intended to carry out the proposed works to redevelop the basement, and that the nature of the works satisfied the requirements of ground (f). The landlord’s evidence also supported the practicality of the works – plans and specifications had been drawn up well in advance of the service of the section 25 notice, a contract had been entered into for a significant sum and there were no planning issues. The landlord had also offered an undertaking to the court, albeit qualified, to carry out the works.
The main obstacle faced by the landlord was the potential that of an injunction being granted to prevent it from carrying out the works. HHJ Saunders considered that the rights of both the landlord and the occupiers pulled in different directions, but that a court would be unlikely to completely prevent a landlord from carrying out works to its own premises, and that if proceedings were brought they would be capable of resolution (especially in light of the size and standing of the landlord).
As to the landlord’ hypothetical intention, the Judge found that the intention had been subsisting for a considerable period, that the plans were realistic and that the works were necessary in light of the on-going problems in the basement. As such, even if the tenant was to leave voluntarily, it was plain that the landlord was going to carry out these works.
This decision serves as a useful reminder of what a landlord will need to show to be able to rely on ground (f) in opposing the grant of a new lease, namely: (i) an intention to carry out the works; and (ii) the ability to carry out the works. It also highlights the importance of the quality of the evidence that a landlord must produce to prove its intention and ability to carry out the proposed works.
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This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.