True intentions? S Franses Limited v The Cavendish Hotel (London) Limited
In one of the most significant judgments for the property industry last year, the Judgment handed down by the Supreme Court on 5 December 2018 in the case of S Franses Limited v The Cavendish Hotel (London) Limited introduces a further hurdle to landlords who wish to rely on an intention to redevelop as ground to recover possession of a commercial property from a tenant.
In my previous article “How Easily Can I Recover Possession from my Tenant for the Redevelopment of a Commercial Property?”, I looked at how a landlord can improve its chances of making out the necessary firm and settled intention to redevelop where it wishes to oppose a request from its tenant for a renewal lease.
The extraordinary Decision in S Franses only makes these practical steps more important.
In the case of S Franses, the landlord opposed the tenant’s request for new tenancies on the redevelopment Ground. The scheme of work eventually relied on by the landlord (following several revisions) would have created, at huge expense, premises incapable of lawful use and occupation and, as such, the natural inference was that the landlord did not genuinely intend to carry out the works.
However, the landlord explained its reasoning – its sole aim was to get the tenant out and it would do whatever was necessary to achieve that aim, even carrying out pointless and expensive works. To convince the court it would actually carry out the works, the landlord even offered an undertaking to do so once vacant possession had been given.
Thus, its intention was genuine, firm and settled – if it needed to carry out the works to get the tenant out, it would definitely do so. However, the landlord admitted that if the tenant vacated voluntarily, it would not proceed with the works.
In a Decision which may have ramifications for all commercial landlords, the Supreme Court decided that the landlord’s intention was not of the nature or quality required to make out the redevelopment Ground. The Decision was based on the conditionality of the landlord’s intention, i.e. that the works were only intended if they were necessary to recover possession. If the tenant left voluntarily, the landlord freely admitted it would not carry out the expensive and pointless scheme of works proposed.
The new test introduced by S Franses could be phrased as follows “Would the Landlord Still Carry Out the Same Works Proposed if the Tenant Left Voluntarily?”
Thus, a landlord who has put together a scheme of works because these works are, in their entirety, desirable come what may should have nothing to fear from this Decision.
However, and whilst a scheme of works designed purely to remove a particular tenant may appear attractive to a landlord where there is no other way to recover the property, any landlord now considering such a scheme should be prepared to have their intentions and motivation carefully scrutinised. Although there is still nothing wrong with part of the motivation behind the proposal being to remove the tenant, that motivation will become an issue if a landlord cannot show that it would still proceed with the same works if the tenant vacated voluntarily.
What was already a complicated area of law has undoubtedly become even more tricky. Taking advice at an early stage can put you in a stronger position and may save time and cost, particularly if court proceedings can then be avoided.
If you would like further advice, please contact Gail Morris
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