English County Court rules against landlord opposing statutory renewal lease on 'ground f'

Sainsbury's Supermarkets Ltd v Medley Assets Ltd is the latest decision on opposed lease renewals where the ruling has been in the tenant's favour when a landlord is opposing a tenant's request to renew a lease under section 30(1) of the Landlord and Tenant Act (LTA) 1954.

The County Court case decided an important and new point of law regarding the extent of "the holding" for the purposes of opposed renewals. It also provided clarification on the quality of expert evidence needed to support a landlord's opposition under "ground f" (the redevelopment opposition ground).

As "ground f" is a heavily litigated area between parties, this decision will be of significant interest to both landlords and tenants who will be questioning how widely applicable this workaround regarding "the holding" will be.

Dispute background

The tenant (Sainsbury's) occupy a supermarket premises on Kentish Town Road under a lease protected by the security of tenure provisions contained in the LTA 1954. Sainsbury's landlord (Medley Assets) served a notice under section 25 of the LTA 1954 to terminate Sainsbury's tenancy on 30 July 2021 on redevelopment grounds contained in section 30 (ground (f)).

Ground (f) states that: "on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding".

The premises demised to Sainsbury's in their lease included the ground floor supermarket, a basement floor and upper floors. The basement and upper floors were vacant.

Sainsbury's issued a lease renewal claim in July 2021. The case proceeded to trial in January 2024 and Sainsbury's argued that the landlord had not successfully satisfied ground (f), so Sainsbury's were entitled to a renewal lease.

If Sainsbury's were successful, there would then be a further trial to deal with the terms of the renewal lease (if agreement could not be reached between the parties).

Landlord's redevelopment plans

The landlord originally obtained planning permission to convert the upper floors of the building into residential flats. However, by the trial the landlord's plans had changed and instead it was proposed to lower the basement floor and widen the staircase from the ground floor to the upper floors, so that the upper floors could eventually be redeveloped into office space. The landlord had planning permission and funding to complete the proposed works.

As Sainsbury's only occupied the ground floor of the building, their demise would have been largely unaffected by the landlord's works, other than a small storage area on the ground floor.

Meaning of 'holding'

Under the LTA 1954, a tenant can renew the tenancy of the "holding", and it is clear that, for protected tenancies, the holding will be the area of the premises actually occupied by the tenant. A week before trial, Sainsbury's vacated the stock room, so that they only actually occupied the ground floor supermarket area (being the area unaffected by the landlord's works).

At trial, the landlord argued that the "holding" for the purposes of the ground (f) redevelopment case should be the entire premises demised to the tenant under the lease. In this case, that would have included the upper floors, basement and stock room. The landlord argued that a tenant would otherwise be able to vacate certain areas before trial in order to defeat "ground (f)". Once defeated, they could re-occupy those areas and obtain a renewal of the whole of the premises.

The landlord therefore sought to rely on section 32(2) of the LTA 1954, which requires the tenant to take a tenancy of the whole of the demise in the existing lease. Sainsbury's argued that this section would only be relevant when deciding the terms of the renewal lease (at a further trial) and that "holding" should be limited to the areas occupied.

The judge agreed with Sainsbury's and decided that the "holding" for the purposes of "ground (f)" should be limited to the areas actually occupied. This therefore defeated the landlord's redevelopment claim, as the intended works (primarily to the basement and stock room) would fall outside of the "holding" and therefore the landlord could not prove an intention to redevelop the holding itself.

Was ground (f) otherwise satisfied?

Although the landlord's claim was defeated, the judge went on to consider whether the works would have satisfied "ground (f)" if Sainsbury's did occupy the entire demise.

The judge found that the landlord did not have a "genuine and settled intention" to carry out the redevelopment scheme proposed. On the factual evidence provided, the works did not appear to be viable, nor did the landlord seem to have any intention of actually going through with the works. The landlord did give an undertaking at trial to carry out the works, but the judge found this too be too late and not genuine.

The judge also decided that the proposed works to the ground floor stair case and stock room were not substantial works of construction, reconstruction or demolition as required by ground (f) and some of the works were actually outside of the area demised by the lease

Further, Sainsbury's could have stayed in occupation and continued trading from the ground floor while the basement works (where they were not in occupation) were carried out.

Expert's duties

In previous recent case law it has been the valuation expert's independence that has been criticised, whereas in this case it was the quality of the expert's factual evidence that was questioned.

The judge decided that the landlord's expert building surveyor was "unreliable" and did not comply with his expert duties to the court. In particular, his expert report contained a multitude of errors (84 spelling errors in total), for which the expert refused to be accountable for and blamed his secretary who finalised the report. The tenant's expert, whose opinion was that the landlord's works were not viable, was favoured by the judge.

Osborne Clarke comment

This case is particularly helpful for tenants facing an opposed lease renewal by a landlord on redevelopment grounds. It has demonstrated that, before a ground (f) trial, a tenant can vacate the part of their demised premises which will be affected by the landlord's works in order to defeat the opposition. They can then return to that area of the premises before the further trial relating to the terms of the new tenancy and seek a renewal of whole.

The decision has also provided clarity on the extent of works a landlord must intend to carry out to satisfy ground (f), specifically that works to lower the level of a floor will not always be sufficient. It will turn on the facts of the case and whether the tenant will be capable of remaining in occupation when the works are being carried out.

However, an undertaking given to the court by a landlord to carry out a redevelopment scheme will not always be accepted. Any such undertaking must be genuine and supported by evidence that the landlord's scheme is viable and is intended to be carried out.

Lastly, experts must be aware of their duties to the court and ensure that their reports are accurate and comply with the Civil Procedure Rules.

A Law Commission consultation report on proposed reforms to the LTA 1954 was originally due at the start of 2024 but has now been postponed until autumn. The reforms will most likely include further guidance to ground (f) so parties eagerly await its arrival.