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Rejection of lease renewals in favour of third party redevelopment upheld by Courts

View profile for Michael Rabbett
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The recent case of Santander UK PLC v LPS Estates Ltd has upheld a landlord’s right to oppose the renewal of a lease by a tenant if the site is intended for redevelopment by a third party.

In this instance, Santander, the tenant of a commercial premises owned by LPS, requested the grant of a new lease following the expiry of the original one. This right to renewal is permitted by the Landlord and Tenant Act 1954, provided that the renewal follows the terms of the existing arrangement. There are specific and limited grounds under which a landlord can refuse a request for a new lease, among them, ground (f). This stipulates that a landlord must prove its intention to extensively demolish or reconstruct the premises in such a way that it must regain possession of it before doing so.

LPS opposed Santander’s request, invoking ground (f). In fact, LPS had agreed a new lease with a third party and obliged them to carry out the redevelopment works in order to satisfy ground (f) thus allowing LPS to effectively terminate the existing tenancy with Santander and proceed with the lease to the new tenant.

In the first instance, the Court decided was that LPS had an intention to redevelop and the refusal to grant a lease renewal to Santander was upheld. However, Santander appealed to the High Court, arguing that the outcome of an outstanding appeal in the case of S Franses Ltd V Cavendish Hotel (London) Ltd was relevant and should be waited upon before a ruling could be made. 

This was rejected by the High Court on the basis that the issue to be decided in the Franses appeal is whether a landlord’s intention to develop, which is required to satisfy ground (f), is satisfied where the works are a contrivance to prove ground (f). This is opposed to the central issue of the Santander case, which concerns whether the intention to redevelop was satisfied if the landlord intended the work to be completed by a third party by means of a building lease, specifically for the purposes of satisfying ground (f).  

In the Court of Appeal case of Spook Erection Ltd v British Railway Board 1988, the landlord sought to redevelop its property and served notice to terminate the existing lease, invoking ground (f). When notice was served, the landlord intended to sell the property to the developers. However, by the date of the hearing, the tenant still refused to move out and so, in order to sustain its ground for opposition, the landlord secured a building agreement with a supermarket operator who agreed to redevelop the site and to take a new building lease on completion of the works.

The Court of Appeal held that the landlord had proved its intention to carry out the works even though it had entered into a building lease to get around ground (f). As such, the High Court was bound to follow the precedent Court of Appeal decision as it could not be distinguished on the facts and it was unlikely that the Supreme Court would overturn the decision.

The rejection of the lease renewal in the Santander case is welcome news for landlords who will be reassured that the law allowing the grant of a building lease to complete works required by ground (f) has been upheld.

Meanwhile, the Supreme Court’s decision in S Franses Ltd v Cavendish Hotel Ltd (London) is expected clarify whether further motivations beyond the basic need to prove the statutory ground of opposition, are required to refuse lease renewals.