Case Insight: Judicial Guidance on Section 30(1)(f) of the Landlord and Tenant Act 1954

This article analyses two recent cases that consider the ‘realistic prospect’ test under Section 30(1)(f) of the Landlord and Tenant Act 1954 in the context of funding, being granted planning permission for a proposed development and the inclusion of an immediate right to break for redevelopment (Man Ltd v Back Inn Time Dinner Ltd and B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd).

Man Limited v Back Inn Time Diner Limited [2023] EWHC 363 (Ch)

The recent case of Man Limited v Back Inn Time Diner Limited [2023] EWHC 363 (Ch) considered the correct test to be applied as to whether a landlord had established a sufficient intention to redevelop to satisfy the ground of opposition to a renewal tenancy under section 30(1)(f) of the Landlord and Tenant Act 1954.

The High Court clarified how the ‘realistic prospect’ test should be applied in the context of the likelihood of funding the intended redevelopment in addition to planning requirements.

To make out ground (f), the landlord must, for this purpose, satisfy the court that it:

“… intends to demolish or reconstruct the premises … 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.”

In this case, the question arose as to what evidence of the landlord’s proposed funding of the intended redevelopment was required.

Impact of the case

The High Court considered that there had to be a ‘real, as opposed to fanciful prospect’ of funding the redevelopment in order to satisfy ground (f). For example, evidence of the availability of other properties as security for the funding of the proposed redevelopment.

This decision is a useful reminder of the need to focus on the correct test and recognises that subtle differences in language can result in applying an incorrect test. For example, in this case, the County Court judge at first instance inferred that he was considering whether the landlord ‘will be able’ to implement its intention and fund the development, whereas the High Court judge decided the correct test was whether the landlord had a ‘realistic prospect’ of implementing its intention. This subtle shift in language avoided the potential to set the threshold too high.

As a result, landlords and their professional advisers must be mindful to evidence a realistic prospect of funding any proposed development in order to satisfy an intention to redevelop under ground (f).

Background

The property was demised to the tenant, Back Inn Time Limited, pursuant to a lease which expired on 31 May 2018. The property was used by the tenant as an American-style diner.

The tenant served a notice under s.26 of the Act seeking the grant of a new lease. The landlord, Man Limited, served a counternotice relying on s.30(1)(f), which provides that a landlord may oppose an application for a new tenancy as described above.

In this case, the landlord asserted that it intended to redevelop the property into a multi-storey mixed-use development, for which planning permission had been sought but had been refused. The landlord was unsuccessful at first instance before the County Court and then appealed to the High Court.

The Decisions

The Court of First Instance

The judge found at first instance that although the landlord had the requisite subjective intention, it lacked the required objective intention for ground (f). The judge came to this conclusion due to (1) the lack of any real prospect of obtaining planning consent and (2) the lack of sufficient evidence concerning the landlord’s ability to fund the development.

Interestingly, between the draft judgment being circulated and the final judgment being handed down, the landlord’s planning appeal succeeded. Nevertheless, the judge refused to reconsider his ruling, as he had found that the planning issue was not the only reason as to why the landlord had not established ground (f) – namely, that the landlord had failed to prove that it would be able to fund the development in a reasonable time after the end of the tenancy.

The Appeal

The landlord sought permission to appeal on the grounds of (1) the judge’s treatment and exclusion of the late evidence on funding and (2) the judge’s application of the legal test of intention in respect to funding.

1. On the first ground of appeal, Sir Anthony Mann found that whilst there was some evidence of funding before the judge in the first instance, bank statements providing concrete evidence of funding were not disclosed by the landlord until the start of its evidence at trial. The landlord was refused relief from sanctions at first instance, and as such, these statements were not admitted. Sir Anthony Mann found the County Court judge was justified in not admitting this evidence due to the serious nature of the landlord’s delay in disclosing the evidence. As such, this decision could not be criticised, and given it was a classic judicial evaluative exercise, there was no real prospect of overturning the judge’s decision on appeal.
   
   Furthermore, Sir Anthony Mann clarified that the judge at first instance had not made a material error in failing to refer in his judgment to evidence that supported the landlord’s oral evidence regarding the availability of other properties for the purposes of funding. Whilst there was evidence of ownership of another property, no particular property had been identified in the witness statement as being available to fund the development. Accordingly, this ground of appeal was dismissed.
    
2. On the second ground of appeal, Sir Anthony Mann considered the legal test in respect of intention and whether the judge at the first instance had set the threshold too high when considering the evidential burden on the landlord in respect of funding. 
   The focus was on the objective limb of the requisite intention. The ‘realistic prospect’ test is usually considered and applied to the likelihood of obtaining planning permission. There had to be a ‘real chance’ as opposed to a ‘fanciful’ one. Sir Anthony Mann agreed that the same test would apply to the availability of finance.
   
   Sir Anthony Mann looked at whether the judge at first instance had applied a higher threshold for the above test. It was agreed by Sir Anthony Mann that the wording used by the judge in the first instance regarding funding – referring to the landlord having to prove that ‘it would be able to fund the development’ - implied that a higher threshold had been applied. Nevertheless, looking at the judgment as a whole, Sir Anthony Mann was of the view that the judge had the right test in mind. The appeal was therefore dismissed.

B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd

Another interesting recent lease renewal case is B&M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd. It considered the inclusion in an unopposed lease renewal of an early break clause for the purposes of redevelopment. HHJ Saunders, sitting in the County Court at Central London, had to determine whether a redevelopment break clause should be included in a new tenancy of a lease of premises on a retail park in Willesden.

The judgment reviews the line of authorities on the subject before ultimately deciding in favour of the landlord and the inclusion in the renewal lease of an immediate right to break for redevelopment purposes. In reaching his decision, the judge held that the court should only hinder a landlord’s redevelopment plans if there are major factors which point the other way and that the court should reject any arguments of the tenant which would stifle or delay unduly any redevelopment.

Overall, the decisions illustrate the court’s approach towards balancing the evidence in favour of and against the arguments on whether there was a real possibility of a landlord funding a development and being granted planning permission for a proposed development in the context of renewal proceedings under the Landlord and Tenants Act 1954.