In the recent case of Sainsbury's Supermarkets Ltd v Medley Assets Ltd [2024], Sainsburys have successfully challenged its landlord's opposition to a new tenancy on the basis of redevelopment grounds. To oppose renewal on this ground, a landlord must demonstrate an intention to carry out work to the ‘holding'. ‘Holding' is defined as being any part of the demised premises occupied by the tenant for the purpose of carrying out their business.
The case addresses the extent of ‘holding' when it comes to opposed lease renewals.
Legal background
Under the Landlord and Tenant Act 1954 (“the 1954 Act”), a landlord may terminate a business tenancy and oppose the grant of a new lease by serving a valid Section 25 notice. For a landlord seeking to oppose renewal, the landlord must specify within its Section 25 notice one of 7 grounds of opposition to a lease renewal. These grounds are (as contained within section 30(1) of the 1954 Act):
- The property is in disrepair;
- There are rental arrears;
- Other breaches of covenant;
- Suitable alternative accommodation;
- The tenancy in question arises from sub-letting;
- The landlord intends to redevelop; or
- The landlord intends on occupying the property.
Once a valid Section 25 notice has been served, the landlord can apply to court to terminate the tenancy without renewal. The tenant may apply for a new tenancy and challenge the landlord's grounds for opposition.
Under the 1954 Act, a tenant is only entitled to a new tenancy of the parts of the demised premises that it is actually occupying (this being, the ‘holding'). Under section 32(1) of the 1954 Act, the court will decide what constitutes the holding when granting a new tenancy, “by reference to the circumstances existing at the date of the order”.
Opposed lease renewals are tried in two stages:
- Stage 1 – the landlord's ground of opposition is tested as a preliminary issue; and
- Stage 2 – if the ground of opposition fails, there will be a second hearing, determining the terms of the new tenancy, including the extent of the demise under the new tenancy.
Where a landlord is relying on redevelopment, the court must understand the physical extent of the tenants holding to decide whether the ground of opposition is satisfied.
The facts
Sainsbury's is the tenant of 329 – 331 Kentish Town Road, London. The property consists of a basement, ground floor and two upper floors.
The landlord served a Section 25 notice, relying on ground (f), redevelopment, to oppose the grant of a new lease. The landlord sought to excavate the basement, widen the stairs from the ground floor to the first floor and refurbish the upper floors into office units. There were no works planned for the front of the store on the ground floor.
Sainsbury's moved all operations to the front of the ground floor, which would have been unaffected by works, and installed stud walls around the stairs. Sainsbury's argued that section 32(2) would only be relevant at the second hearing, which determines the extent of the demise under the new lease and that section 23(3) provides that holding meant the parts occupied at the time of the preliminary trial.
Sainsbury's then challenged the landlord's intention to carry out the works and argued that for the purposes of ground (f) the court could only consider the holding under section 23(3) of the 1954 Act. That being the part of the building occupied by the tenant for its business at the time of the trial of the preliminary issue.
The landlord argued that when they required the new tenancy to be a tenancy of the whole of the property comprised in the current tenant, the holding would be defined by section 32(2) of the 1954 Act as the whole of the property.
Findings
The Judge agreed with Sainsbury's and held that section 32(2) would only apply at the second hearing in determining the terms of the new tenancy.
When considering the landlord's ground of opposition, the physical extent of the holding for these purposes is the part occupied at the date of the trial, as defined by section 23(3). Therefore, the works to the unoccupied ground floor and basement did not fall within the scope of ground (f) and the landlord's claim failed.
Points to take away
The decision may be subject to appeal. This case shows that a tenant may be able to vacate part of a premises before trial to defeat a landlord's ground (f) opposition, and thereafter occupy the remaining premises with a view to seeking a renewal of the lease of the whole of the premises after the issue of ground (f) has been determined.
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