Sainsbury’s Supermarkets Ltd v Medley Assets Ltd
Mark Galtrey, appearing for the tenant, successfully defeated the landlord’s opposition under ground (f) to the grant of a new tenancy under the Landlord and Tenant Act 1954 (‘the Act’). HHJ Richard Roberts decided a novel and important point of law in relation to the extent of ‘the holding’ for the purposes of opposed lease renewals, and also made powerful observations about the quality of expert and factual evidence needed to support a ground (f) opposition by a landlord.
Facts
Sainsbury’s are the tenant of premises on Kentish Town Road, operating a supermarket from the ground floor. The demised premises also includes upper floors, previously used as offices but now vacant, and a basement that had been vacant for some years.
The landlord, Medley, wanted to redevelop the premises. Its original plan, for which it had planning permission, was to covert the upper floors into flats. It served a notice under section 25 of the Act seeking to terminate the tenancy and opposing the grant of a new tenancy on the basis of ground (f) of section 30(1) of the Act i.e. that it intended (in broad terms) to redevelop the demised premises.
At some point, Medley decided not to proceed with the planned flat development. By the time of trial, its stated plan was instead to lower the floor in the basement (for which it had separate planning permission), and to widen the staircase from the ground floor to the upper floors with a view to refurbishing the upper floors as for office use (for which no planning permission would be needed). It had ample funds to complete the project and had spent around £50,000 on the basement planning permission and other surveys.
The proposed works to the ground floor would have intruded into a small region (about 26m2) previously used by Sainsbury’s for stock storage. The week before the trial, Sainsbury’s vacated this area, only occupying the remainder of the ground floor.
Can the tenant change the extent of ‘the holding’?
The usual scheme of the Act is that a tenant is only entitled to a new tenancy of ‘the holding’ i.e. those parts of the demised premises that it is actually occupying. Section 32(1) of the Act provides that, when granting a new tenancy, the court will decide what constitutes ‘the holding’ by reference to the circumstances existing “at the date of the order”.
The difficulty arises from the fact that opposed lease renewals are almost invariably tried in two stages: first the landlord’s ground of opposition is tested as a preliminary issues, and then only if the ground of opposition fails does the matter proceed to a second hearing, some months later, to determining the terms of the new tenancy, including the extent of the demise under the new tenancy. But several grounds of opposition make reference to ‘the holding’: for ground (f) there must be an intention to do works to ‘the holding’ and those works must not be feasible without regaining possession of ‘the holding’.
At the preliminary trial of a ground (f) opposition, the court therefore has to know what the physical extent of ‘the holding’ is in order to decide whether the ground of opposition was made out.
In this case, the landlord had invoked section 32(2) of the Act, which allows a landlord to require a tenant who is not occupying all of the original demise to take a new tenancy of the whole of that original demise, and not just of ‘the holding’. The purpose is to prevent landlords from being left with unlettable portions of a building that the tenant does not want. Section 32(2) provides that in such a case “references in the following provisions of this Part of this Act to the holding shall be construed as references to the whole of [the original demise].”
The landlord argued that the effect of this was that the references in ground (f) to ‘the holding’ should be read as references to the whole of the original demise, so that the works to the basement and the vacated part of the ground floor could fall within ground (f). To do otherwise, it was argued, would allow a tenant to retreat into a small portion of the demise just before ground (f) trial, shrinking the size of ‘the holding’, defeat the ground (f) opposition because there were no proposed works to ‘the holding’, then still end up with a new tenancy of the whole building.
The tenant argued that this went against the clear wording of section 32(2), the effect of which is confined to the “following provisions” of the Act i.e. from section 33 onwards, and not to section 30, which was a preceding provision.
HHJ Richard Roberts agreed with the tenant, holding that ‘the holding’ for the purposes of ground (f) was restricted to those parts of the demise that the tenant was occupying at the time of the trial of the ground (f) issue, even if it was the case that the new tenancy would, by the effect of section 32, be of a larger part, or the whole, of the original demise. As a result, the works to the basement and the vacated area of the ground floor fell outside ‘the holding’ and could not engage ground (f).
Would the works have satisfied ground (f)?
The judge did go on to make findings about the landlord’s intention to the carry out the works, and whether (even if the holding had been the whole of the demise) they would have been works that satisfied the ground (f) test.
Landlord’s intention
Despite what might appears to have been very substantial preparation for the works, the judge held that the landlord did not have a genuine settled intention to carry out any of the proposed works. The landlord’s case was undermined by the factual evidence:
a. It could be seen from contemporaneous documents that this scheme of work had only been conceived of after the service of the section 25 notice.
b. Although extensive documentation had been prepared, on close scrutiny those documents did not add up to a realistic plan for the works: there was no suitable access route for machinery or materials, and the works may well have contravened fire regulations.
c. The works had not been commenced, more than two years after the documents said that they would be completed, despite funds and planning permission being in place.
The landlord had also failed to offer an undertaking to carry out the works. The director of the landlord offered an undertaking after the close of evidence, but the judge refused to accept it, finding that it was too uncertain to be enforceable and was not genuine.
The final difficulty for the landlord was that its expert was found to be “unaware of his duties to the Court and unreliable as an expert”. His report contained many errors, which he refused to take responsibility for, saying that they had not been there when he finalised his report. The judge found that to be untrue, and was not able to put any real reliance on his evidence, accepting instead the evidence of the tenant’s expert that the works were not feasible.
Nature of the works
The judge held that the works to the ground floor were not sufficiently significant to meet any part of the ground (f) test, even though they involved the removal of a staircase and part of a wall.
The basement works involved excavating beneath the level of the existing floor and making new underpinning. The judge accepted that the demised premises only extended as far down as the existing floor level, and so these were works to the landlord’s freehold reversion, not to any part of the demise, and so on any view of the holding they were not works to the holding.
Does section 31A apply in ‘floor-lowering’ cases?
Section 31A (1)(a) of the Act allows the tenant to argue that, even if ground (f) would otherwise be made out, the new tenancy could include terms allowing the landlord to reasonably carry out the works without substantially interfering with the tenant’s business.
The landlord argued, based on Pumperninks of Piccadilly Limited v Land Securities PLC [2002] Ch. 332, that where the floor is being lowered to below the original demise, section 31A cannot be relied on because after the works were complete, the tenant’s demise would ‘float’ and be unusable. That view was supported by commentary in the latest edition of Renewal of Business Tenancies.
However, the judge accepted the tenant’s argument that Pumperninks turned on its own facts: an ‘eggshell’ tenancy where the effect of the works would remove the whole structure of the demise and leave the tenant’s former shop as an open space. The facts here were different: the tenant was not using the basement and could continue to trade from the ground floor even if the basement floor was lowered.
Key points for landlords and tenants
The decision in this case highlights valuable tactics and arguments that tenants can deploy when faced with a ground (f) opposition:
a. It is now clear that the tenant can (if operationally feasible) retreat into a part of the holding unaffected by the works before the ground (f) trial, and then expand back into the remainder of the demise before the trial of the terms of the tenancy.
b. The previous view that lowering the floor of the lowest part of the demise would prevent tenants relying on section 31A is not correct: the facts will need to be carefully examined.
c. Similarly, floor-lowering schemes may fall outside ground (f) if the works are actually to ground below the bottom boundary of the demise.
Landlords need to be aware of these possibilities for tenants, and also to remember that sufficient funds, planning permission and detailed schemes of works will not sufficient to demonstrate the necessary intention: the landlord still need to show that the works can be done in the way proposed, and that they are truly proceeding towards doing them, and not stalling until the outcome of the ground (f) trial is known.
A copy of the judgment is available here.
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