No lease renewal for tenant’s breaches

Mapping out the fault lines – Examining the decision in Kent v Guest [2021] EWHC 51 (Ch)

The High Court has recently considered an appeal in connection with the tenant “fault” grounds under sections 30(1)(a) and 30(1)(c) of the Landlord and Tenant Act 1954 (the “Act”).

Broadly speaking, provided the requirements of the Act are met, a tenant of commercial premises will have “security of tenure”.  This means it will have the right to ask for a new lease of the subject premises to commence after its current lease has expired.  A landlord may oppose this request for a new tenancy on certain grounds.

The facts

The property in this case consisted of around 40 acres of land, part of which accommodated the Ingmanthorpe Racing Stables (the “Property”).  The Property had, at one time, formed part of a larger parcel of land belonging to The Manor House, Ingmanthorpe.

The Manor House had originally been owned by a Mr and Mrs Lumley who employed Mr Guest (the “Defendant”) as their racehorse trainer.  Mr Guest lived in a large caravan on the Property.  In 2015, the Lumleys obtained planning permission to build a detached house on the Property and thereafter sold it to Mr Kent (the “Claimant”), a keen equestrian, who decided to buy the Property with a view to building a new house and running the stables as a business.

An agreement was reached between the Claimant and the Defendant whereby the latter would be entitled to continue to train racehorses at the stables until the Claimant had constructed the new house and moved in.  The parties entered into a one year tenancy until the end of 2016 at an annual rent of £24,000.  The tenancy was contracted out of the security of tenure provisions of the Act.

In 2017, the Claimant inadvertently granted a lease to the Defendant which was subject to the security of tenure provisions of the Act.  When the contractual term of the new lease expired in April 2018, the Claimant sent a letter to the Defendant requiring him to vacate the Property.  The Defendant refused to do so.

In July 2018, the Claimant served the usual notice under section 25 of the Act terminating the tenancy in February 2019 and relying on certain grounds under sections 30(1)(a) and 30(1)(c) of the Act to oppose the grant of a new tenancy.

The grounds of opposition

The grounds of opposition set out in section 30(1) of the Act include:

• 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;
• That the tenant ought not to be granted a new tenancy in view of his persistent delay in paying rent which has become due;
• That the tenant ought not 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.”

The County Court proceedings

The Claimant brought a claim in the Leeds County Court under section 29(2) of the Act to obtain possession of the Property on the basis of his section 25 notice.  The Defendant counterclaimed for a declaration that if he was entitled to a new business tenancy, he was also entitled to occupy the new house that the Claimant had built on the Property because that was part of the land demised by the lease.

The Claimant adduced evidence that there had been a lack of repair and maintenance at the Property, that a business of selling and distributing artificial turf was being run at the Property, and that a number of unauthorised alterations had been made.

The court found for the Claimant and in doing so took into account a number of factors in the exercise of its discretion including the fact that the Defendant had been absent from, and had no real plan for, his future at the Property and that it was likely the Property would “continue to deteriorate probably at a greater rate than in the past” if kept in the tenant’s hands.

The Appeal

The Defendant appealed the decision on nine separate grounds.  These grounds included an assertion that the County Court had been wrong in failing to consider whether the alleged breaches were “substantial” as required by both sections 30(1)(a) and (c) and in taking into account matters which were not substantial breaches, were breaches that had been remedied, or which were allegedly not breaches of the lease at all.

The High Court dismissed the Defendant’s appeal.  In doing so, the High Court confirmed that:

1. The relationship of landlord and tenant is a unitary contractual relationship. This means that for the purposes of looking at a tenant’s default under sections 30(1)(a), (b), and (c) of the Act, a compartmentalised approach could lead to unjust results.  For example, a tenant could breach covenants falling into each of the grounds, which if viewed separately might not mean that the tenant should be denied a new tenancy.  However, if taken collectively, could be of such significance as to make it obviously unfair to compel the landlord to re-enter legal relations with the tenant;
2. The Court was entitled to take the view that the tenant’s breaches regarding repair and maintenance were indeed substantial on the evidence put before him;
3. The Court was also entitled to reach the conclusion that the amendments and alterations to the Property had all been made without consent and that they had either been made during the lease, or if prior to the lease, were still in place during the lease and therefore a breach of covenant;
4. The Defendant’s breach in sharing occupation with the artificial turf business was both a substantial breach of the permitted user covenant and the alienation covenant;
5. The burning of materials on site in spite of warnings from the local council constituted a substantial breach of the tenant’s covenant to comply with all laws as regards the occupation and use of the Property and all materials kept at or disposed from the Property;
6. The Court was right to regard the tenant’s failure to insure as being a serious breach. Whilst the breach had been remedied by the time of the trial that did not mean that the breach was not a substantial breach.

Therefore, the grounds for opposition under sections 30(1)(a) and 30(1)(c) were made out.  The decision of the County Court to order that the Defendant ought not to be granted a new lease was therefore within the range of acceptable decisions open to the judge and was plainly the right decision.

The High Court declined to determine the construction question, which arose as a result of the Defendant’s counterclaim to occupy the new house built on the Property, on the basis that the Defendant’s appeal was dismissed on the question of the County Court’s decision in favour of the Claimant on the opposition issue.

Comment

Landlords may be more inclined to oppose a tenant’s right to a new lease where the landlord claims it intends to redevelop its premises or occupy it itself.  This case provides important guidance for both landlords and tenants where a landlord is considering opposing lease renewal on the tenant “fault” grounds.

Practically speaking, it is important for both parties to have regard to the relevant covenants of the lease during the term of the tenancy and the extent to which any breaches of the same may present an obstruction to the tenant’s security of tenure in the future.  It is clear from the court’s approach in this case that multiple instances of tenant breach will be considered and analysed collectively, rather than on a compartmentalised basis.  This could lead to a situation whereby the tenant faces losing its entitlement to a new lease, thereby damaging or even losing its business, as a result of its conduct.

If you have any queries about this subject, please contact Shams Rahman or any member of the Property Litigation team.

If you aren’t receiving our legal updates directly to your mailbox, please sign up now