How "at fault" does a tenant have to be?

The Court of Appeal has recently provided rare guidance on the fault grounds (a) to (c) that a landlord can rely upon to oppose a lease renewal by its tenant under the Landlord and Tenant Act 1954 (LTA 1954).

Grounds (a), (b) and (c) of section 30(1) LTA 1954 are otherwise described as the default / misbehaviour grounds. They cover disrepair, persistent delay in paying rent and other substantial breaches of the tenancy or of the tenant’s use or management, respectively. Importantly, the judgment in Gill v Lees News Ltd [2023] EWCA Civ 1178 has clarified the position on two key questions: 

1. The key date for judging whether the tenant’s breach should be taken into account; and 
2. How the court should exercise its discretion as to whether a renewal lease “ought not” to be granted. 

Background

Lees News Limited, the defendant tenant, operated a newsagent and convenience store under two leases in West London. Mr Gill, the claimant landlord, was the trustee of a pension scheme which owned the reversion. 

The tenant issued proceedings to renew its leases, but the landlord opposed this on grounds (a), (b), (c) and (f) (redevelopment). The landlord’s grounds of opposition were all dismissed at trial. The trial judge held that whilst the premises were in substantial disrepair at the date of the section 25 notice, the tenant remedied the defects by the date of the trial. The trial judge held that the other breaches, including the delay in payment of rent, were ‘minor’ and would likely not recur. 

The decision was appealed by the landlord on the two questions above. 

The relevant date and period 

At the Court of Appeal, the tenant claimed that the judge should only examine the condition of the premises on the date of the trial. However, the Court of Appeal decided to adopt a much wider approach, assessing how the tenant had maintained the premises throughout the tenancy. They agreed with the landlord that the court should not be tied to a “single snapshot”. 

The court acknowledged the fact that the tenant had carried out the relevant repair works between the date of the s.25 notice and the trial was relevant, however made it clear that this would not in itself entitle a tenant to a renewal lease. The court stated:

 “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.” (LJ Lewison, paragraph 39)

Therefore, the Court of Appeal held that ground (a) would be engaged by even minor disrepair at the date of the s.25 (or s.26) notice, and earlier in the term, and that the court would not be confined to consideration of the state of repair at the date of the trial alone. 

Interpretation of the phrase - “ought not to be granted a new tenancy.”

When considering the key question about whether a tenant “ought not” to be granted a new tenancy, the Court of Appeal stated that in circumstances where a landlord is relying on multiple breaches of the tenancy, they would look at the various breaches as a whole. Therefore, rather than considering each breach in isolation (where the breaches may individually be seen as inconsequential), the correct approach was for the judge to make a value judgment regarding whether the tenant “ought not” to be granted a renewal lease. 

In addition, the court must consider the matter from both the perspective of the landlord and the tenant, and how its decision to grant a renewal lease would affect each party. There was a balancing exercise to be undertaken; weighing up whether it was fair to compel the landlord to re-enter legal relations with the tenant given its past behaviour, alongside the consequences to the tenant of a refusal to order a renewal lease, which in this case would involve a loss of livelihood. 

The Court of Appeal agreed with the trial judge that the tenant had learned its lesson, and that the near loss of its livelihood would incentivise the tenant to comply with its obligations in the future. 

Key takeaways 

This judgment has clarified that the court will not take a compartmentalised approach as to a tenant’s breaches, or the period in which these breaches occurred, when considering the fault grounds for opposition under the LTA 1954. It further clarifies that the court will consider the potential consequences of its decision to both parties and undertake a balancing act when exercising its discretion. 

Ultimately, this decision highlights that a tenant cannot repeatedly breach the terms of a lease and then expect a renewal lease to be granted, simply by remedying its breaches prior to a trial. The court’s decision to grant a renewal lease on these facts was primarily based upon a confidence that the tenant would comply with its obligations going forward. Therefore, the decision should be viewed as a warning to tenants in relation to a potentially misguided view of the operation of the fault grounds of opposition, and the exercise of a court’s discretion regarding commercial business lease renewals.