Opposing a commercial lease renewal under ground (f): The Franses Test
Franses applied and the relevance of a threatened injunction (London Kendal Street No3 Ltd v Daejan Investments Ltd)
So we’ve finally got our first reported case where the court have applied the NEW Frances Test.
What is the Frances test you may ask? This was possibly the most exciting (Supreme Court no less) case we’ve had on opposed commercial lease renewals for decades. It established the new test that to oppose a statutory lease renewal under section 30(1)(f) of the Landlord and Tenant Act 1954 (the redevelopment ground), a landlord’s intention to do the works in question can’t be conditional on whether its tenant chooses to seek a new lease. The acid test is whether the landlord would do the works if the tenant left voluntarily.
Although only a County Court decision, this case is the first reported decision in which a court has had to apply the Franses test. Arguments based both on the Franses test and on the possibility of other tenants in the building obtaining an injunction to stop the works were unsuccessful—the landlord had the requisite intention required by ground (f) to carry out its works.
London Kendal Street No3 Ltd v Daejan Investments Ltd (Central London County Court) 2019
What are the practical implications of this case?
The tenant had tried to argue that the landlord could not show a reasonable prospect of being able to carry out the works because other tenants in the building would seek an injunction to prevent the works proceeding on the grounds of nuisance or breach of landlord’s covenants (interestingly in this case, those other tenants were linked companies to the tenant). Although that argument was also not successful on the facts, this case does show the importance of considering the effect of the landlord’s proposed works on third parties when advising a landlord or a tenant on the prospects of success under ground (f).
Before panic sets in about the possibility of an injunction being successful when dealing with multi occupied units, the judge made it clear that even if an injunction were to be granted (and remember it’s a discretionary remedy), it would be unlikely to be absolute. A court would be reluctant to create a situation where one party is prevented from carrying out works to its own property. As an alternative, they may limit the times when works can be carried out or contain other provisions limiting any potential disruption.
The judge also stated that as a very rough rule of thumb, to rely on ground (f), a landlord needs to show that it will be able to start the works within six months and 21 days from the date of the court’s judgment. Under section 64 of the Landlord and Tenant Act 1954 ( LTA 1954), a tenant’s lease does not end until three months after the application is ‘finally disposed of’. An application is ‘finally disposed of’ when the 21-day period for making an appeal has come and gone. The extra three months on top of that comes about because a court will give a landlord a reasonable period of time after a lease ends to ‘get its house in order.’ This won’t come as too much of a surprise as this is a long established timeframe that people work to.
So what about the Franses test? The judge ruled that the test was satisfied here. The landlord had no difficulty funding the works, no difficulties with planning, contracts were in place (the building contract was for £1.6m plus standing charges), timescales for starting were realistic and the landlord needed to start the works because of problems in the basement that needed resolving (damp and corrosion needed attention to maintain the integrity of the building). In addition, the landlord had given an undertaking to the court to carry out the works after vacant possession had been given (subject to an injunction not being granted) and there was evidence that the landlord’s intention to carry out the works was reached at an early stage well before the section 25 notice was served (and so that intention was untainted by this dispute).
Whilst providing an undertaking to the Court to carry out the works after vacant possession had been given is unusual and no doubt as a result of the Frances test, it’s unclear whether that will become the norm. Common sense and commerciality need to prevail but only time will tell once we’ve seen more cases which apply the Frances test to see if this will become commonplace.
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