LTA 1954: landlord opposed lease renewal on basis of substantial breach of the lease (Court of Appeal)

LTA 1954: landlord opposed lease renewal on basis of substantial breach of the lease (Court of Appeal)

Background

Statutory right to a lease renewal

A tenant of a business lease has a statutory right to a new lease at the end of the contractual term, if it satisfies criteria in section 23 of the Landlord and Tenant Act 1954 (LTA 1954).

Landlord's right to oppose a lease renewal

Landlords may only oppose a tenant's application for a new lease on specific grounds set out in the LTA 1954.

The statutory grounds of opposition include where the premises are in disrepair and substantial breaches of covenant.

Premises are in disrepair (Ground (a))

Under section 30(1)(a) of the LTA 1954 (Ground (a)) the landlord can oppose a lease renewal:
"where under the current tenancy the tenant has any obligations as respects the repair and maintenance of the holding, that the tenant ought not to be granted a new tenancy in view of the state of repair of the holding, being a state resulting from the tenant's failure to comply with the said obligations".
To satisfy Ground (a), the landlord must prove both of the following:
  • The tenant has an obligation to repair.
  • Disrepair of the holding.
It is then for the tenant to persuade the court that it should be granted a new lease despite the disrepair.

Substantial breaches of the lease or other reasons (Ground (c))

Under section 30(1)(c) of the LTA 1954 (Ground (c)), the landlord can oppose a tenant's right to a lease renewal on the ground:
"that the tenant ought not be to be granted a new tenancy in view of other substantial breaches by him of his obligations under the current tenancy, or for any other reason connected with the tenant's use or management of the holding."

Facts

The tenant (T) had a lease of property described as "dwelling house shop and premises", which included a yard to the rear. The user clause in the lease required T:
"at all times during the said term to use the Premises for the purposes of any retail trade within Classes A1 and A3 of the Town & Country Planning (Use Classes) Order 1987 and not to use the Premises or any part thereof for any other purpose without the written consent of the Landlord (such consent not to be unreasonably withheld)…"
It was not clear what T was using the property for, but it was not open for trade to the public.

The lease also contained a clause requiring T to permit the landlord (L), and persons authorised by L, to enter and examine the condition of the premises at reasonable times. T had made it difficult for L to arrange access, and had put conditions on the visits.

The lease was not contracted out of the LTA 1954. The lease expired and the tenant remained in occupation. T served a notice under section 26 of the LTA 1954, requesting a new tenancy. L objected to the grant of a new tenancy on Ground (a) and Ground (c).

The judge at first instance held that Ground (a) and the first limb of Ground (c) were satisfied. The court ordered the termination of the current tenancy without the grant of a new tenancy, on the following basis.

Ground (a) (state of repair)

The rear wall of the property was covered in a creeping plant, making it impossible to see what state the wall was in. This creeper growth was sufficiently substantial to evidence disrepair for Ground (a). Although T's repairing covenant only extended to the interior of the demise, the judge stated:
"The failure to control the plant growth is not of itself a breach of [the] tenant's repairing covenant. It is, however, in my judgment, a breach of the tenant's implied covenant to use the premises in a tenant-like manner."

Ground (c) (breach of covenant or any other reason)

The first limb of Ground (c) was satisfied by two separate breaches of the lease covenants.

Breach of access covenant

T had been obstructive regarding access to the property in a way that undermined the efficient working of the relationship between landlord and tenant.

Breach of user covenant

The lease required the property to be used for a use with Class A1 or A3. T did not run a business with Class A1 or A3 and the judge found that T had no intention to do so, despite being on notice for three years that T was in breach of this covenant.

T's appeal

T appealed against the termination of the tenancy without the grant of a new tenancy on four grounds:
  • The judge was wrong in law to conclude that there was a breach of Ground (a). The judge was incorrect in his interpretation of the lease to conclude that exterior parts of the premises were T's obligations either as regards disrepair or, indirectly, through T's general tenant obligations.
  • The judge failed to find that any of the breaches of a repairing obligation were substantial. A breach of the lease for failing to behave in a tenant-like manner did not warrant termination under Ground (a).
  • The judge was wrong in law or reached a decision outside the permitted range that the breaches under Ground (c) were substantial. Access to the premises was given for the limited purposes identified under the lease. T was using the premises for the purposes of retail trade within classes A1 and A3 as required by the lease.
  • The judge incorrectly applied section 30(1) of the LTA 1954, taking into account immaterial considerations and failing to identify any ongoing prejudice and any unfairness to L when deciding that a fresh tenancy 'ought not' to be granted.

Decision

The Court of Appeal upheld the order of the judge and declined to order the grant of a new tenancy to T. The court's reasoning differed in some regards from that of the lower court. The Court of Appeal agreed with T's appeal on Ground (a) and dismissed T's appeal on Ground (c).

Ground (a) (state of repair)

Under the lease, L was responsible for keeping the structure of the building in repair. If the creepers needed to be removed to keep the exterior in good condition, it was the responsibility of L to do so, not T. The judge had been wrong to find that the failure to remove the creeper, even if it were a breach of T's repairing obligation, was a substantial breach when the sum involved in carrying out the work was said to be only £350.

There was no relevant substantial breach under Ground (a), so this ground of appeal was upheld.

Ground (c) (breach of covenant or any other reason)

Breach of access covenant

The judge was right to find that there had been a breach of the access covenant. The judge's findings on this element of Ground (c) were upheld and T's appeal on this ground was dismissed.

Breach of user covenant

The judge was right to conclude on the construction of the user clause in the lease that there was a positive obligation to use the premises for one of the stipulated purposes and not merely a negative obligation not to use the premises for some other purpose. The court stated:
"The absence of an express "keep open" covenant of the type which was under consideration in the very different context of Co–operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 3 All ER 297 does not detract from the conclusion that the covenant in the present case imposed a positive obligation."
The Court of Appeal hesitated over whether the judge was entitled to find that the breach of the user covenant was substantial, but held that in the special circumstances of this case, he was. The judge was entitled to find that the failure of T to operate a business within the relevant use classes was prejudicial to the legitimate interests of L. L did not need to show any ongoing or quantifiable loss to succeed on this ground.

The judge's findings on this element of Ground (c) were upheld and T's appeal on this ground was dismissed.

Comment

The facts of this case are unusual, as T was not operating any discernible business from the property. This point was not taken when considering whether T in fact had the protection of the LTA 1954 in the first place, and the case proceeded on the basis that T did have security of tenure.

The case is a helpful example of the circumstances that the court will take account when considering a landlord's objection to a renewal tenancy for breach of the lease terms.


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