Commercial lease renewal: Proving a landlord’s intention to carry out works (London Kendal Street No3 Ltd v Daejan Investments Ltd – 2019)

Where a landlord objects to a tenant’s claim for a new tenancy on the grounds that it intends to carry out works to the property, how does the landlord prove that such intention is valid? (London Kendal Street No3 Ltd v Daejan Investments Ltd - 2019)

The background

In London Kendal Street No3 Ltd v Daejan Investments Ltd [2019], the claimant tenant occupied part of the ground floor of a building let by the landlord under four separate leases, each granted to different group companies of the tenant. The landlord served a s.25 Notice on the tenant to terminate the lease under the Landlord and Tenant Act 1954. The landlord intended to oppose any new tenancy on the grounds that it wished to demolish or reconstruct the unit (‘Ground F’) and could not do so without the tenant vacating the premises.

The tenant nevertheless applied for a new tenancy. Both parties agreed that the works proposed by the landlord fell within Ground F, but the tenant argued that the landlord could not demonstrate sufficient intention to undertake the works.

The decision

The County Court found that the landlord did have sufficient intention to undertake the proposed works. The landlord had given an undertaking to the Court that it would carry out works, which itself carried weight. Further, from an early stage in negotiations for the tenancy, the landlord had raised the issue of a break clause which indicated that it wished to deal differently with this tenant and, perhaps most notably, the landlord had subsequently entered into a sizeable contract with the contractor to carry out the works.

The landlord’s intention was subsisting, realistic and the landlord was incentivised to progress as a result of some problems in the building which required resolution.

The landlord also needed to demonstrate that he intended to carry out the work on the termination of the tenancy. The tenant argued that the works breached the lease’s covenant for quiet enjoyment and indicated that it would seek an injunction to prevent the works being carried out. However, even if an injunction was granted or works delayed, the landlord could still commence works within the six months and 21-day period allowed by law.

Advice and action for landlords

This case will reassure commercial landlords that, where there is a genuine intention to undertake works and a valid s.25 Notice has been served, a court will support the landlord’s decision not to renew a tenancy.

However, landlords must be able to provide strong evidence that redevelopment or reconstruction will take place; in this case, that included evidence during original negotiations to agree a break clause and the appointment of a contractor for a building contract of sizeable value.