Breach in haste, repair at leisure – when should a tenant ‘ought not’ be granted a new business tenancy?

Over the past few years, much of the focus around business tenancy renewals under the Landlord and Tenant Act 1954 (the ‘Act’) has centred around impending talks of reforms to the Act (currently with the Law Commission at pre-consultation stage) and issues of landlord redevelopment; in particular, what landlords need to establish by way of intention to insert a redevelopment break into renewal leases and to successfully rely on ground (f) (redevelopment) to oppose a renewal under section 30(1) of the Act (‘section 30(1)’).

However, in the recent case of Harmohinder Singh Gill v Lees News Limited [2023], the Court of Appeal provided some useful and much-needed guidance in relation to the discretionary grounds that landlords can also rely on when seeking to oppose a business tenancy renewal under section 30(1) – namely:

• ground (a) (disrepair);
• ground (b) (persistent delay in paying rent); and
• ground (c) (tenant ought not be granted a new tenancy due to other substantial breaches or any other reason connected to use or management of the holding).

Background

In Gill, the tenant served section 26 notices to renew two business tenancies of shop premises in London W10. The landlord subsequently served counter-notices opposing the renewals, relying on grounds (a), (b), (c) and (f) under section 30(1). Court proceedings were issued, and at first instance, the judge granted new tenancies on the basis that:

• in relation to ground (a), the disrepair to the premises had been fully remedied by the tenant by the date of the trial,
• the other breaches under grounds (b) and (c) were minor, and
• ground (f) was not made out.

The landlord appealed, and the two specific questions the Court of Appeal was asked to consider were as follows:

1. What was the ‘material time’ at which ground (a) had to be established?
2. What was the scope of the value judgment implicit in the wording ‘the tenant ought not be granted a new tenancy’ under ground (c)?

The ‘material time’ question

In response to the first question, the court held that there was no fixed date for assessing the state of repair of the holding under ground (a). Although counsel for the tenant submitted that it should be the position at the time of the trial that was relevant, the court was unconvinced, with Lord Justice Lewison noting that it would be ‘too prescriptive to say that breaches of the repairing covenant at the date of the notice must be ignored if they have been remedied by the date of the hearing’, and ‘if the tenant has a lamentable record of performance and only puts things right at the last minute’, that was something the court was legitimately entitled to take into account. Instead, the court decided that, in the absence of express wording in the Act, the material time covered the entire term of the tenancy and the court was open to assess the state of repair throughout this period when considering ground (a). This approach also reflected obiter comments in a number of authorities on opposed lease renewals, and was more consistent with the court’s approach when assessing arguments based on grounds (b) and (c) more generally.

The ‘ought not’ question

As to the second question, the court articulated a number of useful principles in examining what it called the ‘ought not’ question. It affirmed the trial judge’s wide approach of considering ‘all relevant matters’, rather than a narrow, compartmentalised approach which focused on individual prior breaches by the tenant and looking at whether these might prejudice the interests of the landlord under a new hypothetical lease. Instead, all past tenant breaches of the tenancy, as well as the attitude and conduct of both landlord and tenant, could be taken into account.

On the latter point, the court considered what the landlord characterised as ‘deception’ on the part of the tenant over the course of the litigation – referring to how the tenant had initially argued the premises were not in disrepair despite knowing this to be incorrect, and then proceeded to carry out remedial works to the premises over the course of proceedings and to suppress evidence and make misleading disclosures as to when the remedial works had taken place. Although counsel for the landlord argued that such conduct was ‘so egregious it effectively undermined the relationship of landlord and tenant’, the court was unconvinced this threshold had been met, and found instead that the trial judge was entitled to decide:

• the breaches and the tenant’s conduct overall were not serious enough to justify denying the tenant a new tenancy; and
• although there had been disrepair to the premises at the time the landlord’s counter-notice had been served, the fact that the tenant subsequently undertook substantial repairs at great cost meant that they understood and appreciated the importance of complying with all lease covenants going forwards; and was likely to adhere to the terms of any new leases granted.

Analysis and comment

It is important to note that all ongoing developments under the 1954 Act are happening in the context of what are likely to be fairly wide-ranging statutory reforms in the background. The Law Commission is now aiming to publish a consultation paper sometime in 2024 for industry bodies and stakeholders to respond to, which in turn will inform its formal report to the UK Government with recommendations for reforming the Act. This will almost certainly look at the grounds of opposition under section 30(1), and what changes (if any) should be considered to these.

In the meantime, however, under the existing regime, perhaps the most important point arising from Gill is that we now have Court of Appeal authority that, when considering a landlord’s ground of opposition in an opposed lease renewal under the Act, it can consider the tenant’s conduct and any breaches under the lease:

• both individually and collectively, and
• across the entirety of the lease term; not just at the time of the trial.

In practical terms, therefore, both landlord and tenants should note that, going forwards:

• the court’s approach of taking a holistic view to tenant breaches in the round could lead to more landlords succeeding in making out their grounds of opposition under section 30(1) – for instance, in case where breaches under grounds (a), (b) and/or (c) were relatively minor or trivial such that, taken individually, they would not meet the threshold; but taken cumulatively they could convince a court that a new tenancy the ‘ought not’ be granted pursuant to ground (c); and
• simply taking remedial action for any prior breaches before the trial (eg carrying out repair works after a landlord’s section 25 or counter-notice is served) would not be a silver bullet for tenants, as this will not guarantee the court will grant a new tenancy.

Finally, in Gill, there was also a useful discussion of the sorts of bad conduct in litigation that could lead a court to conclude that a tenant ‘ought not’ be granted a new tenancy pursuant to ground (c). It referred in particular to the case of Horne & Meredith Properties v Cox [2014] , where the tenant’s unreasonable and cavalier behaviour in litigation alone had been sufficient for ground (c) to be made out. In that case, the tenant had subjected the landlords to a ‘remorseless campaign of unmeritorious litigation over 16 years’, had made ‘spurious or exaggerated claims, accompanied by baseless allegations of fraud’, and had caused the landlords to incur legal costs of over £300,000 in defending themselves. Although the court noted that Horne was an extreme case, it went on to suggest that where a tenant had made extravagant allegations, had repeatedly lied in the witness box, but then promised the court things would improve in the future, the court could be entitled to cite this as a reason for denying a new tenancy.

If you’d like to receive advise on any of the issues mentioned in this article, please reach out to Simon Painter and Phil Smith in our property disputes team, who will happy to deal advise on your situation.