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Timestamp: 2018-09-18 21:27:55
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Home Page > Property Law Library > Business lease renewal > Ground (g)
Section 30(1)(g) of the 1954 Act provides the following as a ground entitling the landlord to resist an order for a new lease:
"that on termination of the current tenancy the landlord intends to occupy the holding for the purposes of a business carried on by him".
However, the courts have put a gloss on this simple statement. For example: "A man cannot properly be said to intend to do a work when he has not got the means to carry it out. He may hope to do so: he will not have the intention to do so". (Roehorn v Barry Corporation, Lord Denning). Or "The question whether the landlords intend to occupy the premises is primarily one of fact, but the authorities establish that, to prove such an intention, the landlord must prove two things. First, a genuine bona fide intention on the part of the landlords that they intend to occupy the premise for their own purposes. Second, the landlords must prove that, in point of possibility, they have a reasonable prospect of being able to bring this occupation by their own act of volition". (Gregson v Cyril Lord Ltd [1962] 3 All ER 907).
The test (including the judicial gloss) therefore has two limbs to it. Does the landlord have:
A bona fide intention to occupy the holding for the purposes of the business (a subjective element)?
A real possibility of starting the business (an objective element)?
Limits of the gloss
There are two fairly recent cases that remind us that the purpose of the judicial gloss is only to ensure that the landlord satisfies the court as to intention and that the burden is not a particularly heavy one:
In Dolgellau Golf Club v Hett (1998) L intended to take over and run a golf course. He had no schemes, no indication of likely cost, no real idea of finances. Yet the application for a new lease was refused.
In Gatwick Parking Services Ltd v Sargent [2000] 2 EGLR 45 a collateral "mother of all battles" over planning permission did not stop the landlord from successfully relying upon s30(1)(g).
Auld LJ in Dolgellau Golf Club at 79E:
".. the function of the judicial gloss on the statutory test of intention is to determine the reality of a landlords intention to start a business, not the probability of his achieving its start or, even less, its ultimate success. .. The test is whether the landlord has a reasonable prospect of achieving his genuine intention of occupying the demised property for the purpose of conducting a business there within a short or reasonable time after termination of the tenancy The wisdom or long term viability of the project are not, in my judgment, candidates for further judicial gloss on that provision."
Dealing with either limb
Zarvos v Pradhan
[2003] EWCA Civ 208
As stated above there are two limbs to the test: (i) does the landlord have a bona fide intention to do so (a subjective element) and (ii) does the landlord have a real possibility of starting the business (an objective element).
In this case it was held that the judge could decide whichever of those limbs is most appropriate to decide first. On the facts of this case the trial judge was entitled to find that the prospects of borrowing the necessary funds to start the business were "sufficiently unrealistic as not to be, genuine in all the circumstances of the case". There is simply too much money that will have to be borrowed in order to get the business up and running..". That is he dealt with the second limb first and that was sufficient to deal with the case. The judge was not required to go on and determine whether or not the landlord's subjective intention was bona fide.
Intention to retain premises only for a short period
We have here two cases, which come to two different conclusions:
Patel v Keles
[2009] EWCA Civ 1187
Where a landlord opposes an application for a new lease by relying upon s30(1)(g) – intention to occupy – the court can properly conclude that the landlord has not shown the requisite intention to occupy premises where it is found that a sale of the property is likely in the short term.
The trial judge came to the conclusion that it was "highly likely that at the expiry of the two year period there will be either a sale or the grant of a lease of some kind." He therefore made an order that the tenant be granted a new lease.
The landlord's appeal was refused. This was a decision that the judge was entitled to come to. The CA set out the principles to be applied where the landlord is only likely to retain the property in the short term after he has regained possession.
Arden LJ at para 36:
"Section 30(1)(g) does not require that the landlord should intend to occupy the premises for any particular length of time. Clearly .. his intended occupation must not be fleeting or illusory, but this is a minimum requirement which might be an appropriate test to apply where the business is to be continued through successors in title. In other circumstances, in my judgment there must be some substance in the intended occupation for the purpose of carrying on the landlord's business and thus I agree with the judge that the occupation must be more than short-term. Parliament could hardly have intended that the landlord should be able to prevent the renewal of business tenancy if that were not so. What is short-term must depend on the facts of the particular case. In any event, if the landlord has a sufficient intention for the purposes of Cunliffe to sell the premises within five years, he will be treated as not having the requisite intention to occupy: see Willis. However, if the judge, as here, finds that he is likely (indeed "highly likely") to sell, that likelihood is a factor which the court must take into account in deciding whether the landlord has discharged the burden of proving that he has a genuine intention to occupy premises for the relevant purpose at all. This is a multifactorial question to be decided on all the relevant evidence."
The Gulf Agencies Ltd v Abdul Salam Seid Ahmed
[2016] EWCA Civ 44
The Court of Appeal allowed a landlord’s appeal against a county court ruling that he had failed to establish either part of the test of ‘intention’ under section 30(1)(g) of the Landlord and Tenant Act 1954. The Judge at first instance had failed to explain why he had not accepted the landlord’s evidence as to his subjective intention, and had been wrong in holding that two years occupation of the premises was insufficient to establish the objective part of ‘intention’.
L was the landlord of a building in which its tenant, T, occupied the ground and basement floors (the premises) under an oral lease. L served notice on T under s25 of the LTA 1954 opposing an application by T for renewal of its lease of the premises under section 30(1)(g) of the Act. L, a solicitor, stated that he intended to use the premises both for his solicitors’ practice and for his minicab business. The County Court judge held that L had failed to establish the requisite intention underground (g) as he had failed to satisfy the test for ‘intention’. L appealed to the Court of Appeal.
The main issue related to the question of whether L had satisfied the two-part nature of the test of ‘intention’, namely:
(1)	Whether L had a “fixed and settled intention” to occupy (subjective test); and
(2)	Whether L had “a reasonable prospect of being able to bring about its desired result” (objective test).
The Court of Appeal upheld the landlord’s appeal and remitted the case back to the county court for re-trial by a different judge.
(1) On the question of subjective intention, the Court of Appeal noted that in his witness statement, L had stated: “I require the premises for my own use as I have currently two businesses and rent two commercial premises. For economic reasons it is my intention that these two businesses will occupy these premises”.
Whilst acknowledging that the trial judge had been concerned about the authenticity of various property documents produced before him, and whether they therefore supported that stated intention, David Richards LJ said,
“Apart from finding that the guarantee attached to one of the versions of the licence agreement had been manufactured, the judge made no findings on the authenticity of the documents and no findings on whether the landlord had been knowingly party to the production of false documents.”
He pointed out that that clear reasons for a finding have to be given by a judge. He said:
“[a] fair reading of the judgment suggests that the judge implicitly did not believe the landlord, there is no express finding to that effect and no clear reasons for that conclusion. This is an unacceptable way of deciding the case, from the point of view of both parties. It is a very serious concern for the landlord that he appears to have been disbelieved without any clear finding or any clear statement of the grounds for that finding. It is also a matter of concern to the tenant. A clear finding of dishonesty would have given the tenant strong grounds for applying for its costs to be assessed on the indemnity basis.”
He held that that the first instance decision on subjective intention could therefore not stand.
(2) On the question of objective intention, the premises were subject to a certificate of lawful use issued by the local planning authority for Class A1 (retail). It was accepted that the landlord would be entitled to use the premises for Class A2 (financial and professional services) for two years without the need to obtain planning permission by virtue of the Town and Country Planning (General Permitted Development) Order 1995, as amended by an Amendment Order 2013/1101. However, the question was whether this was sufficient to establish the objective element of “intention”. The Court of Appeal held that two years occupation would be more than “fleeting or illusory” and “more than short term” (per Arden LJ in Patel v Keles [2009] EWCA Civ 1187 - where the court nonetheless held that an undertaking to occupy for two years did not satisfy the test).
Contrary to the finding in Patel v Keles [2009] EWCA Civ 1187 – see above, it would seem that an intention to occupy for two years may be sufficient to establish ground (g). It will, as always, depend on the facts of the case.
Complex commercial arrangement
Humber Oil Terminals Trustee Ltd v Associated British Ports
[2012] EWCA Civ 596
This case provides an important illustration of the operation of LTA 1954, s.30(1)(g) in a commercial context. It also provides a useful overview of the court’s approach to the evidence required to establish the landlord’s intention to occupy the holding for the purposes of its business as required under that section. The Court of Appeal has upheld the lower court’s decision that the landlord had shown both a “firm and settled intention” to occupy and a ‘reasonable prospect of achieving that intention’.
L was the landlord of an oil terminal and T was the tenant under a number of leases of important parts of the oil terminal. T installed a complex system of pipes and equipment at the terminal for its own purposes. Under one of the leases, T was entitled to remove the pipes and equipment at the end of the lease and was also exempt from paying ship and cargo dues.
L served s25 notices on T opposing renewal on ground (g), i.e. on the basis that:
"on the termination of the current tenancy the landlord intends to occupy the holding for the purposes, or partly for the purposes, of a business to be carried on by him therein ....".
Whether L had established the necessary intention to occupy, and if so when?
T maintained that, if unable to renew its leases, it would remove the pipes and equipment (this would cost it about £10m). T would then enter into a commercial arrangement with L or seek alternative facilities or close refineries – all of which would mean less business for L but would also reduce T’s profits by a substantial sum. If T stripped out its equipment, it would then cost L at least £60 million and two years to replace the pipes and equipment.
T argued that:
L had no ‘fixed and settled’ intention to occupy for its own purposes;
That in order to occupy, L would need the full co-operation of T, and T intended to strip out it’s works;
L had no reasonable prospect of being able to put any intention into practice;
Even if L tried to occupy, it would in fact use the current operator to continue to operate the terminal (and so had no intention to ‘occupy’ itself) and, as L would be taking over T’s business, L could not be said to be occupying for the purposes of ‘a business carried on by him’; and
Any occupation would not be ‘on the termination of the current tenancy’ because of the disruption caused by T’s stripping out works
T’s appeal was dismissed.
L had shown a genuine, firm and settled, and unconditional intention to run the terminal itself. It had provided various board minutes and memoranda evidencing its decision. It was not for the court to decide whether this was a prudent business decision but simply to be satisfied that the intention had a reasonable prospect of being fulfilled.
The court rejected the circularity argument – that L could only show an intention with T’s co-operation, and that if T co-operated L could not show its own intention. The court was not prevented from making findings of fact as to what would happen on termination.
The court considered that T was likely to negotiate a commercial arrangement if the landlord succeeded under ground (g). Even if that did not happen, and T removed its equipment, the court did not consider that L would simply do nothing with the terminal. The court found that L intended to open up the terminal to a wider range of customer, and the court did not consider it had to look at the viability of any alternative plan.
The court considered that allowing the current operator to run the terminal did not mean that L was not ‘occupying’, nor that it would be occupying for a business not ‘carried on by’ it.
The court held that L intended to occupy at the end of the leases.
The case provides a useful summary of the law on the meaning of “intention” under ground (g) and illustrates how the court will analyse the commercial reality of the parties’ positions when making its decision. In terms of tactics, the case also highlights the fact that by purchasing a freehold (more than five years before the determination of the lease), a competitor could use ground (g) to significant commercial advantage.
5-year rule – competent landlord throughout
Frozen Value Ltd v Heron Foods Ltd
[2012] EWCA Civ 473
A landlord seeking to oppose renewal under s30(1)(g) of the Landlord and Tenant Act 1954 (intention to occupy itself) must be the “competent landlord” for the whole 5 year period required under s30(2) of the Act.
Section 30(2) of the 1954 Act states:
"The landlord shall not be entitled to oppose an application ... if the interest of the landlord, or an interest which has merged in that interest and but for the merger would be the interest of the landlord, was purchased or created after the beginning of the period of five years which ends with the termination of the current tenancy, and at all times since the purchase or creation thereof the holding has been comprised in a tenancy or successive tenancies within the Act."
The five-year period is calculated by counting back from the termination date of the tenancy specified in the s25 notice or the s26 request.
Section 44 of the Act provides that the renewal procedure takes place between the tenant and the “competent landlord” who is defined as the person who holds the reversion expectant (whether immediate or not) on the termination of the tenant's tenancy and that reversion must be either a freehold or a tenancy with more than 14 months to run. This means that someone with a leasehold interest can qualify as the competent landlord, but there must be more than 14 months of the term remaining.
The defendant (“T”) was the tenant of premises, under a head lease expiring 17 July 2012. T took an assignment of the head lease on 7 June 2005. The premises were occupied by the claimant, sub-tenant, under a sub-lease expiring on 14 July 2010.
On 27 January 2010 the sub-tenant served a s26 request on the head-landlord (as “competent landlord” under s44 of the Act) specifying a termination date of 29 July 2010.
On 24 February 2010 the head-landlord granted T a new head lease of the premises for a term of 15 years commencing on 18 July 2010, and later that day, T served a counter-notice on the sub-tenant opposing renewal under s30(1)(g).
On the grant of the new head lease, T became the competent landlord of the sub-tenant again. However, although for the period from 17 May 2009 to 24 February 2010 T was the sub-tenant's immediate landlord it was not the competent landlord for the purposes of the 1954 Act.
Must a landlord, who wishes to oppose renewal under Ground (g), have been the competent landlord throughout the whole of the required 5 year period?
By a 2:1 majority, the Court of Appeal held that the landlord must, in order to satisfy the five year ownership requirement in s30(2), have been the competent landlord at all times during the 5 year period. Successive interests could satisfy the requirement, but under each interest the landlord must be the competent landlord.
Generally speaking, the court held, references to “landlord” within the 1954 Act are to be construed as references to “competent landlord”.
Section 44 required the three references to the landlord contained in s30(2) to be construed as meaning the competent landlord. Between 17 May 2009 and 24 February 2010 T was not the competent landlord and so did not possess the "interest of the landlord" required under s30(2) and could therefore not rely on Ground (g).
T was not the competent landlord at the date of the sub-tenant’s s26 notice. T became the competent landlord again on the date of the grant of the new headlease (24 February 2010), that was the date of the creation of T’s interest under s44 (Artemiou v Procopiou [1965] 3 All ER 539), but that date was not five years before the tenancy termination date of 29 July 2010.
Jackson LJ and Llloyd LJ considered that Artemiou and VCS Car Park Management Ltd v Regional Railways North East Ltd [2001] Ch 121 were not authority for saying that the landlord need not be the competent landlord for the whole of the 5-year period but were simply authority permitting the landlord to rely on successive interests. Rimer LJ, dissenting, thought that Artemiou was wider than that and would allow a landlord to rely on Ground (g) as long as throughout the requisite five year period he had an interest superior to the sub-tenant’s.