Court of Appeal in England and Wales rules against landlord seeking to oppose a statutory renewal lease

The majority of lease renewal case law this year has centred around what landlords need to demonstrate  to achieve a redevelopment break clause in a lease that is being renewed under the Landlord and Tenant Act 1954.

However the Court of Appeal's recent judgment in Gill v Lees News Ltd has provided welcome guidance on the grounds that a landlord can rely on when opposing a tenant's request to renew a lease under section 30(1) of the Act.

While it is usually "ground f" (the redevelopment opposition ground) that is heavily litigated between parties, this decision provides clarity on the "tenant fault grounds" including (a) failure to meet its repair obligations under the lease, (b) persistent delay in paying rent, and (c) substantial breaches of the lease or any other reason connected to the tenant's use or management of the property.

In contrast with ground (f), where these "fault" grounds are made out, it remains at the court's discretion whether the tenant "ought" to be granted a new tenancy.

This decision confirmed that the court will consider multiple grounds of opposition cumulatively, rather than in isolation, and also clarified the key date for assessing the tenant's breach for a "fault" ground.

Dispute background

The tenant (Lees News) operated a newsagent under two leases in west London and in 2018 it made a request for new tenancies under section 26 of the Act. The landlord (Mr Gill) served counter-notices opposing the grant of the leases stating opposition under grounds (a), (b) and (c) of section 30(1) of the Act.

The landlord argued that these breaches meant the tenant "ought not" to be granted new leases, however the High Court disagreed and held that the landlord had not established this.

The High Court found that while the premises were in substantial disrepair at the date of the section 25 notice served by the landlord, the defects had been remedied by the date of the hearing and the other breaches (including late payment of repair and breaches of other lease covenants) were "minor". It ordered new tenancies to be granted.

The landlord appealed on two issues, the key date for assessing the tenant's breach for a "fault" ground, and the interpretation of the phrase "the tenant ought not to be granted a new tenancy".

Key date for establishing breach

The tenant argued that it was the date of the hearing which was the key date for establishing whether it was in breach of its obligations, and that the section 25 notice was merely a notice of intention from the landlord of its arguments for the hearing. It argued that any earlier disrepair was irrelevant as it had remedied the defects by the hearing date.

While the court emphasised that fixing the disrepair before the hearing was important and should be given considerable weight, it was not the only consideration.

The Court of Appeal preferred the landlord's arguments that the breach was not tied to a "single snapshot" on the hearing date and instead should look at the various breaches as a whole and throughout the term of the lease when deciding whether the tenant "ought not" to be granted a new lease. Specifically the Court of Appeal judge commented that "if the tenant has a lamentable record of performance and only puts things right at the last minute that is, in my judgment, something that the court can legitimately take into account".

Court discretion

This decision also gave guidance as to the breadth of the court's discretion when considering if the tenant "ought not" to be granted a new tenancy, emphasising there are many factors which could be potentially relevant.

The court has to balance the perspective of the landlord with the consequences for the tenant (if a new tenancy is refused) and should also look at the "fault" grounds cumulatively as well as individually. The court also highlighted that the tenant's conduct during the proceedings would be considered.

Decision in favour of tenant

In exercising its discretion when answering the "ought not" question, the court took  into account its assessment of Gill as a "hands-off" commercial landlord, and the tenant's attitude to repairs.  

The tenant had satisfied the first instance judge that on balance the tenant "ought" to be granted a new tenancy: the premises being the tenant's livelihood, the disrepair having been remedied, the other breaches being insubstantial and the delayed rent payments being relatively minor and not likely to reoccur in future.

The Court of Appeal held that the trial judge's decision (and its value judgment) was one to which he was entitled to come, and one the appeal court cannot and should not interfere with. It dismissed the appeal.

Osborne Clarke comment

One of the most important points in this decision is that the tenant's conduct across the whole term of the lease will be considered by the court when it exercises its discretion as to whether to grant a new tenancy under the Act. Tenants should take note that this means while they should still attempt to remedy any breaches (rent or disrepair) by the date of the hearing, this does not guarantee the grant of a new lease.

While landlords are often encouraged to add ground (a) disrepair as a ground of opposition in its section 25 notice – as there is no requirement in the Act for this type of breach to be substantial – the court is unlikely to look kindly on a landlord if these are minor, historical and remedied disrepair.

Although the judgment was in favour of the tenant, landlords can take some comfort from the clarification that where there are multiple grounds of opposition, the court will take a holistic approach and consider their full range. This could be important where grounds on their own may be regarded as fairly trivial  but taken together may add up to circumstances in which the tenant ought not to be granted a new lease.

Reform of the Act (resulting from the Law Commission review) is a current source of much speculation, with predictions around what provisions will be changed and whether, in practice, this will cause more complexity and litigation. With the impending consultation report due by December 2023, there is not long to wait for clarity on the proposed reforms, which will no doubt include further guidance around the grounds of opposition.