Opposing the grant of a new commercial lease
Grounds A, B , C. Not quite as easy as 1, 2, 3
In my article "Seven grounds to oppose a new lease", I briefly set out the 7 grounds available to a Landlord of a commercial property who wishes to oppose the grant of a new lease to a Tenant. In this article, I take a closer look at the first 3 grounds known as grounds (a) - (c), so called because they are set out at Section 30(1)(a), (b) and (c) Landlord & Tenant Act 1954.
Ground (a): The tenant has obligations in relation to repair and maintenance under the current lease, and the property is in disrepair
The Landlord will need to satisfy the Court that the Tenant has a repair obligation (that is, an obligation in relation to maintenance, restoration and decoration) and the property occupied by the Tenant is in disrepair.
The disrepair must be substantial, that is, something that is not easily remedied, which usually means that it has an adverse impact upon the value of the property. It is important to note that Ground (a) only relates to that part of the property occupied by the tenant for the purposes of its business. This is relevant in those instances where part of a property is sublet, with a landlord not able to rely upon the disrepair of the sublet parts, to oppose a new lease using Ground (a).
The property must be in disrepair when the Landlord gives the Tenant notice (either in the Landlord's section 25 notice or the Landlord's counter-notice to the Tenant's section 26 notice) of the Landlord's opposition to the grant of a new lease, albeit the Court will also consider the condition of the property as at the final hearing of the Tenant's application for a new lease.
Ground (a) is a discretionary ground, which means that even if the Court is satisfied that the Tenant was subject to a repair obligation and the property occupied by the Tenant is in disrepair, the Court may still decide to grant a new lease to the Tenant.
If the property is in disrepair as at the time of the final hearing of the Tenant's application, a Landlord's opposition to a new lease based on Ground (a) is likely to succeed - the Court should not grant a new lease unless it is satisfied that there will be no repeat of the disrepair issues. On the other hand, if the Tenant is able to persuade the Court that there is a good reason for disrepair, is willing to attend to all existing repair issues and has the financial means to do so, the Court may reject the Landlord's Ground (a) opposition.
Ground (b): There has been a persistent delay in the payment of rent;
Section 30(1)(b) states that a Landlord can oppose the grant of a new lease in view of the tenant's persistent delay in paying rent that has become due.
"Rent" is not defined within the Landlord & Tenant Act 1954, but when considering ground (b), the term Rent covers all sums reserved within the existing lease as rent.
"Persistent delay in paying rent" has been held to mean a history of late or non-payment of rent over a period of time, although as Ground (b), like Ground (a), is a discretionary ground, there is no definitive test that is applied in each case by the Court, rather each case is judged on its own facts.
When considering a Tenant's application for a new lease in circumstances where the Landlord is opposing the application on the basis of Ground (b), initially it is for the Landlord to show that there have been arrears of rent. Once the Landlord has established that the Tenant has failed to pay rent when it fell due, it will be for the Tenant to persuade the Court that a new lease should be granted to the Tenant despite its past rent payment failures.
The Court must be satisfied that if a new lease is granted, the Tenant will pay all rent in full on time i.e. that there will be no arrears. In reaching a decision on this issue, the Court will consider the circumstances surrounding any non-payment of rent, such as the length of time that the rent was unpaid, how much was due and for how long and what steps, if any either party took in relation to the arrears.
A Tenant seeking a new lease, who has previously been late in paying rent, would be well advised to offer a rent deposit or some other security to mitigate against the risk of any future non-payment of rent.
If there are substantial rent arrears as at the date of a the final hearing at which the Court is being asked to order a new lease be granted to the Tenant, then a Landlord will be understandably aggrieved if the Court saw fit to grant a new lease!
Ground (c) the Tenant should not be granted a new lease due to there having been other substantial breaches of the Tenant's obligations under the current lease, or due to some other reason connected to the Tenant's use or management of the holding
Ground (c) is has been referred to as a "sweeping up" ground, being a ground which enables a landlord to cite reasons which do not neatly fall under other grounds. A Landlord who wants to rely on Ground (c) needs to show that either
- there have been substantial breaches of the Tenant's obligations in the Lease; or
- a reason connected to the Tenant's use or management of the holding
The "substantial breaches" (which, as the term suggests, cannot be minor) of the lease relate to obligations not covered by Grounds (a) or (b), with breaches of subletting or permitted use clauses being the most commonly cited.
A point to note regarding the "substantial breach" head of Ground (c) is that its application is not limited to those parts of the property that the Tenant occupies itself, rather it covers all of the property leased to the tenant . Unlike Ground (a), Ground (c) can be relied upon in relation to a disrepair of any part of the property that has been let to the Tenant, but is not occupied by the Tenant..
The second head of Ground (c) enables the Landlord to challenge the grant of a new lease based upon the Tenant's use or management of the property where that use or management does not amount to a breach of the lease terms. This enables the Landlord to oppose the grant of a new lease where the Tenant's has, for example, engaged in conduct which is not strictly a breach of the lease terms but is such that he Landlord considers it inappropriate for the Tenant to be granted a new Lease. This is, in my experienced, rarely relied upon.
Ground (c), as with grounds (a) and (b), is a discretionary ground. Each case, therefore, must be judged on its own facts when it comes to assessing the likely outcome of any application for a new Lease. This is far from ideal and emphasises the importance of a Landlord who is against the idea of a Tenant being granted a new lease taking advice at the earliest opportunity so that they can be fully informed as to their options.
In the next article, I will look at Grounds (d) and (e), before moving on to consider the more commonly used grounds (f) and (g). If you have any queries arising from this article, the grounds set out at section 30(1) Landlord and Tenant Act 1954, or wish to discuss a related matter, contact Chris Drinkall, Partner and Head of Rollits' Property Dispute Resolution, on 01482 337367 or by email at firstname.lastname@example.org
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.