Authors: Matthew Bonye, Partner and Head of Real Estate Dispute Resolution and Rhian Arrenberg, Professional Support Lawyer, Real Estate Dispute Resolution, London
In this post we consider we consider one of the options open to a landlord who wishes to regain possession of a business premises, without having to pay the tenant statutory compensation for disturbance.
When a landlord wishes to regain possession of business premises which are occupied pursuant to a lease which is within the security of tenure provisions in the Landlord and Tenant Act 1954 (the "1954 Act"), it will usually turn to the statutory ground under section 30(1)(f) to oppose the grant of a new tenancy. Indeed the ground (f) demolition or redevelopment ground seems by far the most obvious when development works are contemplated. The landlord can, however, use one of seven grounds either on their own or in combination, including the much underused ground (d). Ground (d) would, if proved, mean that the landlord would not pay the tenant statutory compensation for disturbance. This is so even if the landlord is also relying on other grounds that do trigger compensation, for example ground (f).
So, what is ground (d)? Ground (d) is set out in section 30(1) of the 1954 Act, and it allows a landlord to end a business tenancy at or after the end of the contractual term if:
The landlord has offered and will provide or secure suitable alternative accommodation for the tenant;
The terms upon which such accommodation is available are reasonable having regard to the terms of the tenancy and all other relevant circumstances; and
- The accommodation and the time at which it becomes available suit the tenant's requirements (including the requirement to preserve any goodwill), having regard to the nature and class of its business and to the situation and extent of, and facilities afforded by, the holding.
Timing of the offer – The landlord should make the offer of alternative accommodation just before or at the same time as serving his section 25 notice terminating the current tenancy, or, if he has already been served with a tenant's section 26 request for a new tenancy, just before or at the time he serves his counter-notice in response. However, the alternative premises do not have to be ready or vacant at the time that the offer is made. It is also possible to serve multiple, or revised offers, as negotiations between landlord and tenant proceed in relation to the termination of the tenant's interest in the land.
Terms of the offer – The 'reasonableness' of the terms on which the accommodation is offered is judged objectively. When making that judgment, the terms of the current tenancy will be considered, and key terms such as rent, duration, and provisions relating to repairs, alienation, alteration etc will be looked at as a whole. It would be for the landlord, as the party proposing any changes in the terms, to justify them as being fair and reasonable. However, this does not mean that there should not be any changes. The terms will be looked at as a whole package. Offers can also include rent free periods in the new accommodation, or a contribution to fit out costs, should such inducements be available in the market. It is considered that the landlord does not need to own the premises being offered, but merely to be able to procure them so that they will be made available to the tenant by whoever is the landlord at the relevant time. This can be useful for landlords with suitable alternative premises owned by other group companies, or even if the landlord knows of another owner who is keen to offer premises to the landlord's tenant.
Suitability of the alternative premises – Again, the suitability of premises involves a value judgment, and matters such as the nature and class of the tenant's business, and the location and size of, and facilities at, the current premises will have to be considered. All of these features will have to be compared before premises could be declared suitable. Practical matters such as whether it is possible to house heavy machinery or specialist equipment (depending on the nature of the tenant's business) will also have to be considered. Landlords might well find it easier to identify alternative premises to typical development sites such as offices, warehouse or industrial units (whether the alternative accommodation is already part of their existing portfolio, or can be secured in the market) where there is less goodwill attached to a particular location, compared to a retail site, where footfall and pitch can be vital.
The statutory compensation payable to tenants in order to secure possession of a development site, particularly when businesses have been carried on at premises for more than 14 years, can be very high. Landlords could have much to gain by considering making a ground (d) offer, not least as it could also encourage a tenant to negotiate its exit from the premises and give the landlord certainty in its programme.
For more information please contact:
Rhian ArrenbergProfessional Support Lawyer, Real Estate Dispute Resolution, London
+44 20 7466 2594