Landlords: the importance of accuracy and consistency in recovering possession of commercial property

The facts

McDonalds was the former tenant of the ground floor and basement premises at the Riverside Building, County Hall, in London, of which the defendant was the landlord. The lease benefitted from the security of tenure provisions of the Act. McDonalds requested the grant of a new lease on 12 December 2016, and the landlord served notice on McDonalds on 14 December 2016 refusing the grant of a new lease of the premises.

The notice terminated the lease under ground (g) of the Act. This enables a landlord to oppose a lease renewal if "...on the termination of the current tenancy the landlord intends to occupy the holding for the purposes or partly for the purposes of a business to be carried on by him therein or as his residence."

In 2016, the landlord had made an application under section 29 of the Act in order to obtain a court order that McDonalds’ tenancy would be terminated without the grant of a new one. In this set of proceedings in the Central London County Court in 2018, the landlord argued that they were going to run a Japanese restaurant from the premises.  The judge was satisfied that, on the facts and evidence, the landlord had proved the required intention to occupy the premises for the purpose of carrying on their business. The judge delivered judgment on 12 November 2018 and granted an order that McDonald’s lease was to be terminated in March 2019. McDonalds closed its restaurant from the premises on 10 February 2019.

However, by November 2019, the landlord had not opened this Japanese restaurant from the premises. A restaurant was later opened on the ground floor in early 2020 and, in early 2021, the landlord opened a different restaurant from the one described in the business plans produced to the court in the 2018 proceedings. Instead of the Japanese restaurant, the landlord began to operate a coffee shop/bakery in the basement of the premises.

McDonalds subsequently sued the landlord on grounds of deceit and misrepresentation, claiming that the landlord had only succeeded on its ground (g) claim in 2018 by making misrepresentations of its intention for the use of the premises. 

A landlord must show that the purpose of occupancy is for the purpose of a business to be carried on by the landlord, or as the landlord’s residence. The landlord must also intend to occupy the premises within a reasonable time after the termination of the tenant’s tenancy. This ground requires a landlord to show sufficient control of a holding in order to prove intention to occupy. The burden was on the landlord to prove:

1. A fixed and settled desire to do that which it intends to do; and 
2. That it has a reasonable prospect of being able to bring about that result.

It is possible for a landlord to change its mind after trial, leaving a tenant with no remedy, provided the landlord can show that, at the date of trial, the required intention existed. A tenant does however have a potential remedy against a landlord under s37A of the Act if they can prove that the original intention never existed, and as such a misrepresentation had been made to the court. This is why McDonalds sued the landlord; McDonalds claimed that the landlord had never intended to open a Japanese restaurant and always intended to open a bakery/coffee shop, which it considered to be a wholly different venture to the restaurant plan. 

Under section 37A of the Act, if a tenant’s claim is successful, the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damage or loss sustained by the tenant as the result of the order or refusal.

Satisfying the requirements of ground (g) can be quite a high threshold. Indeed, in the case of The Royal Borough of Kensington & Chelsea v Mellcraft Ltd the Royal Borough of Kensington & Chelsea (RBKC) served notice to terminate the tenant’s lease on the basis that the landlord was going to occupy the premises for the purpose of its business, to house homeless persons. The court found that RBKC could not satisfy the conditions of ground (g): by leasing the property to tenants, RBKC would not be maintaining significant control of it, and thus could not succeed under ground (g).

For a claim of “deceit” to succeed, the claimant must show:  

1. A false representation made by the defendant to the claimant;
2. The defendant knows that representation is false, or alternatively acts recklessly as to whether that is true;
3. The defendant intends that the claimant’s actions rely on the false representation; and
4. The claimant does act in reliance on the misrepresentation and consequently suffers a loss. 

The judge made two insightful observations regarding the misrepresentation claim:

1. Section 37A does not require a misrepresentation to be deliberate or reckless. However, in a case in which ground (g) is relied on, it is difficult to see how a landlord could innocently or negligently misrepresent its intention.
2. The second was that, in order for compensation to be claimed under s37A, it must be “made to appear to the court that the order was obtained [for termination of the current tenancy], or the court was induced to refuse the grant [of a new tenancy] by misrepresentation or the concealment of material facts”. 

The landlord claimed that its change of plans had been due to various factors, including Brexit and the COVID-19 pandemic.

However, a few hours after the judgment had been handed down in 2018, there was a chain of emails from the landlord to a firm of architects called IFDO containing plans for a new “grab and go” restaurant, significantly different to the Japanese restaurant they had pitched before the court. This email was also sent to another 88 individuals, many of whom had no apparent connection to the landlord’s business, and included prominent persons in politics and the film industry.

A number of further emails were then sent by the landlord, to the architects and various other individuals, pitching multiple new ideas for the restaurant which ranged from a Michelin star restaurant to a high-class Spanish restaurant. At no point during the preliminary issue trial had the defendant suggested to the court that they were considering implementing a different business plan from the one originally submitted. 

The judge found that the claim under s37A was successful, but dismissed the claim in damages for the alleged deceit.

The judge was satisfied that, given the landlord’s conduct immediately following the preliminary issue trial, the landlord did not have the intention at the time to occupy for the stated purpose of a Japanese restaurant. It was accepted that the landlord did intend to open some form of restaurant, however, the type and extent of the restaurant were “up in the air”.

The landlord had therefore made deliberate misrepresentations, and had misled the court at the preliminary issue trial. Compensation was awarded to McDonalds for the damage sustained, with the amount to be determined at a subsequent trial at a later date.

The claim of deceit was dismissed as the judge was not convinced that the landlord intended for McDonalds to have acted in reliance on the misrepresentations. Rather, the judge felt the landlord had been attempting to mislead the court into making the termination order. 

The case makes clear the high threshold for a landlord to successfully oppose the grant of a new lease by relying on ground (g).  Whilst it is open for a landlord to change its mind regarding its intention for the property, a rapid change of mind will likely suggest that the original intention was in fact never actually held.

Additionally, this case highlights the significance of the defendant’s misrepresentation, in that s37A does not actually require a finding of deliberate or reckless misrepresentation in order for a claimant to be awarded compensation. However, in this case, it was still found due to the speed in which the defendant’s plans for the property changed.

It remains to be seen, with interest, the impact of this decision combined with the recent decision of Sainsburys Supermarkets Ltd v Medley Assets Limited. 

Harriet Allsop is an associate in the property litigation team. She assists businesses and individuals in managing and resolving disputes in relation to both commercial and residential properties. Louise Bonnici is a trainee in the property litigation team.