Sainsbury's Supermarkets Limited v Medley Assets Limited, Central London County Court, 25 March 2024
Ground (f) – the holding- unilateral action by the tenant to shrink the holding to defeat ground (f)
Lina Mattsson acted for the Landlord in this potentially groundbreaking decision for commercial tenants who wish to defeat ground (f), s 30 of the Landlord and Tenant Act 1954. Although a County Court decision and with the key parts being obiter, the judgment makes essential reading for anyone advising clients on commercial lease renewals.
The facts
Sainsbury's is the commercial tenant of 329-331 Kentish Town Road, London, consisting of a basement, ground floor trading area and two upper floors. The Landlord wished to redevelop the property and relied on ground (f) to oppose a new lease. The stated intention at the date of the trial of the preliminary issue was to excavate the basement and widened the stairs from the ground floor to the first floor and revamp the upper floors into office units. No works were planned to the front of the shop on the ground floor.
The week before the trial of the preliminary issue, Sainsbury's moved all their operations to the front of the ground floor and erected stud walls around the stairs. Sainsbury challenged the Landlord's intention to do the works, but also argued that for the purpose of ground (f), the Court could only look at the "holding" as defined in s 23(3) of the Act i.e. the part of the building occupied by the tenant for its business at the time of the trial of the preliminary issue ("the Occupied Part"). The Landlord argued that when a landlord required the new tenancy to be a tenancy of the whole of the property comprised in the current tenancy, then then "the holding" was defined by s 32(2)(b) as the whole of the property.
The Judge found that the Landlord had failed to discharge its evidential burden that it intended to carry out the stated works. This was enough to dispose of the objection for the new lease, but as the judge also expressed his view on legal arguments in respect of "the holding".
The judgment
The relevant provisions of the Act are s 23, 30, 32 and 46. Section 23(3) reads:-
In the following provisions of this Part of this Act the expression "the holding" , in relation to a tenancy to which this Part of this Act applies, means the property comprised in the tenancy, there being excluded any part thereof which is occupied neither by the tenant nor by a person employed by the tenant and so employed for the purposes of a business by reason of which the tenancy is one to which this Part of this Act applies.
Section 30(f) reads:-
"That on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding."
Section 32 reads as far as relevant:-
32.— Property to be comprised in new tenancy.
(1) Subject to the following provisions of this section, an order under section 29 of this Act for the grant of a new tenancy shall be an order for the grant of a new tenancy of the holding; and in the absence of agreement between the landlord and the tenant as to the property which constitutes the holding the court shall in the order designate that property by reference to the circumstances existing at the date of the order.
...
(2) The foregoing provisions of this section shall not apply in a case where the property comprised in the current tenancy includes other property besides the holding and the landlord requires any new tenancy ordered to be granted under section 29 of this Act to be a tenancy of the whole of the property comprised in the current tenancy; but in any such case—
(a) any order under the said section 29 for the grant of a new tenancy shall be an order for the grant of a new tenancy of the whole of the property comprised in the current tenancy, and
(b) references in the following provisions of this Part of this Act to the holding shall be construed as references to the whole of that property. [emphasis added]
Finally s 46, Interpretation of Part II provides :-
subject to the provisions of section thirty-two of this Act, "the holding" has the meaning assigned to it by subsection (3) of section twenty-three of this Act;
The Judge held that the effect of s.23(3) is that "the holding" to be considered for the purpose of Ground (f) is only those parts of the demise that the tenant is occupying at the date of the preliminary trial, and not the whole of the demise. Section 32(2) had no application to Ground (f).
The Judge held that s.32(1) of the Act is subject to the words "the following provisions of this section", i.e. 32(1A), 32(2) and 32(3), and not any earlier section, or any later section. S.32(2) applies to "the foregoing provisions of this section". He held that the parliamentary draftsman has identified by the use of the words "following" and "foregoing" precisely which provisions of section 32 each subsection of s.32 is subject to and that the differences between subsections 32(1) and 32(2) are deliberate and precise and cannot be ignored.
He found that as a matter of construction:
- i) s.32(2) of the Act is only engaged if and when the landlord's opposition to a new tenancy has already failed and the Court has determined that a new tenancy shall be granted.
- ii) In the provisions preceding s.32 (including s.30 of the Act), the holding has the ordinary meaning: the Occupied Part.
The effect of section 32(2)(b) of the Act is only to make these obvious changes, and not to have any effect on the operation of any preceding sections, including s.30 of the Act in general and ground (f) in particular, which always use the conventional meaning of the holding: the Occupied Part.
The Judge dismissed the Landlord's submission that this construction would make a mockery of a landlord's mandatory right to redevelop the property it owns under Ground (f) as it allows the tenant to unilaterally move into a small part of the demise where it knows that the landlord is not intending to undertake any works in order to defeat ground (f). This would be particularly so when a landlord has to the tenant's knowledge elected that the new tenancy will be for the whole property; an election which has to be pleaded in the claim form if the landlord is the Claimant (56PD.7 paragraph 3.7(2) ), and in the Defence if the landlord is the Defendant (56PD.12 paragraph 3.12(2)(f)).
The Judge held hat this was wrong as a landlord could change its position at any stage prior to the Court determining the terms of a new tenancy.
Lesson learnt
The decision is potentially revolutionary for a savvy commercial tenant who wishes to defeat a landlord's reliance upon the mandatory grounds in s 30.
If upon consideration of the landlord's evidence, the tenant can identify a part of the demised premises which the landlord is not undertaking works to which would fall within ground (f) (i.e. demolish or reconstruct) the tenant can move its business operation into that part of the premises just before the trial of the preliminary issue. The landlord will then not be able to satisfy the court that Ground (f) is engaged and will lose the preliminary issue and the court will make an order that a new tenancy shall be granted.
The landlord will then be put to the election of whether to grant the tenant a new tenancy of only the "occupied part" or grant the tenant a lease of the whole of the property let under its current tenancy. If the tenant is occupying part of the premises which is not economically separable part, in that it would not make any commercial sense to carve up the premises in that way, then the landlord may not have a choice but to seek an order that the new lease be the whole of the premises. A tenant is of course entitled to revoke any order for a new tenancy under s 36, should it choose to do so. It follows that the sole risk to the tenant is the legal costs.
Shrewd commercial tenants with gumptions can thus make redevelopment extremely difficult for landlords. Let the games begin.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
