“Redevelopment representations”
A tenancy of business premises to which Part II of the Landlord and Tenant Act 1954 applies gives the tenant a statutory right to remain at the end of the term and to renew his lease. The landlord is however able to oppose such lease renewal by advancing specific “grounds” of opposition.
One of those (rather common) “grounds” of opposition falls under section 30(1)(f) of the 1954 Act, that is to say:
"that on 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”
Where the court is precluded from making an order for the grant of a new tenancy on the strength of the landlord succeeding in making out his ground (f) opposition, or where the landlord has simply served notice terminating the lease, stating his ground (f) opposition and the tenant makes no application to court for a new tenancy (or makes an application but later withdraws it), the tenant is entitled to compensation (by virtue of section 37 of the 1954 Act) upon quitting the premises (compensation is presently calculated at either once or twice the rateable value of the premises, essentially depending upon the length of business occupation). Compensation is also payable under two other “hostile” grounds of landlord lease renewal opposition, but in this article we focus upon the redevelopment ground - ground (f).
Section 37A of the 1954 Act gives a further statutory compensation provision under which a tenant is able to make a claim for compensation where a landlord has obtained possession of the premises by making a misrepresentation or concealment of the facts. Under this provision, damages will be awarded to a tenant not only in cases where the court refuses lease renewal and it is subsequently made to appeal to the court that the order was obtained, or the court was induced to refuse the grant of a new lease by the landlord’s misrepresentation or his concealment of material facts, but also in cases where the tenant, upon receipt of a “hostile” lease termination notice, simply quits the premises in the face of the notice (or makes an application for lease renewal and subsequently withdraws it) if it is made to appear to the court that the tenant did so by reason of the landlord’s misrepresentation or concealment of material facts. The compensation award shall be “such sum as appears sufficient as compensation for damage or loss sustained by the tenant……” and which could therefore be quite extensive - including for example, an award for relocation costs and business interruption.
The recent Court of Appeal decision of Inclusive Technology v Williamson [2009] illustrates the potential exposure of landlords to “misrepresentation” compensation claims, where they fail to inform tenants of a change of intention to redevelop. This is particularly relevant in the current economic climate where funding issues are likely to sway many landlords into putting their redevelopment plans on hold.
The facts of the case were that the tenant occupied two units on a business park. The tenancy was for a term of 6 years ending on 21 January 2007 and had the protection of Part II of the 1954 Act (and thus the tenant had the right to the grant of a new lease). The landlord had previously warned the tenant that he may require possession of the premises at the end of the term to carry out works of redevelopment. By June 2006 the landlord had formed a genuine intention to redevelop the premises and thus served notice terminating the lease and opposing lease renewal under ground 30(1)(f) of the Act. By the end of September 2006 the landlord had decided to hold off the redevelopment, although he still intended to carry out the works in the future when the circumstances were right. As such, by the end of the tenancy the landlord was not in a position to rely on an intention to carry out works as required under section 30(1)(f). The landlord did not inform the tenant of his change in intention. By November 2006 the tenant had signed up to alternative premises and then vacated the business units on 15 December 2006.
The tenant became aware that the landlord had not carried out the refurbishment works and made a claim for compensation against the landlord under section 37A of the 1954 Act. At first instance the trial judge held that there had been no “continuing representation” by the landlord that would prevent it from changing its mind as to the redevelopment. As such, there had been no “misrepresentation” by the landlord. The tenant appealed.
The appeal was allowed. The ruling illuminates the nature and effect of section 37A in a specific set of circumstances. The court considered it implicit within the section that a “misrepresentation” or “concealment” of the facts could be found upon the conduct of the landlord, even where the tenant did not apply for a new tenancy – in other words, where the tenant simply took the landlord’s representations at face value and acted upon them. The purpose of the section was to encourage fair dealing between the parties. It was incumbent upon a landlord to act responsibly and in good faith. The court drew analogy with contract law in the context of a statement being true at the time it was made, but then ceasing to be true at the time a contract was entered into, the representor being aware that the statement was no longer true. Failure to notify the representee of the change in circumstances would then, on the face of it, amount to a misrepresentation.
In the present case the court held that the situation was indeed analogous to the contractual scenario. The representation (that the landlord intended to redevelop and therefore required possession of the premises) was made in a specific transaction for a specific purpose. It was to be regarded as a continuing representation which became false (and therefore a “misrepresentation”) at the point at which the landlord changed its mind. The case highlights that not every case in which a section 30(1)(f) notice is served would impose such a continuing obligation on the landlord – the Court of Appeal acknowledged that that a ground of opposition stated in a termination notice was not, by itself, sufficient to amount to a representation of a landlord’s intention. However, in the Inclusive case there were exchanges between the parties before the termination notice was served in which the landlord was very open about its plans. Indeed, the covering letter serving the termination notice stated the landlord’s intention to redevelop and explained that that was the reason for service of the notice. As such, that gave rise to a continuing representation and which brought the matter into the realms of section 37A and (when the landlord changed its intention and failed to notify the tenant) a finding that there had indeed been a “misrepresentation” or “concealment” of the facts which led to the tenant vacating the premises.
The knee jerk reaction to the Inclusive case may be for landlords to shy away from disclosing any details of their redevelopment plans. However, the danger in this approach is that the Civil Procedure Rules (the “court rules”) governing the running of litigation, encourage co-operation between the parties. A failure to adhere to this principle may see landlords being ordered to pay a tenant’s legal costs even if the landlord succeeds on his ground (f) claim (where a tenant may argue, for example, that the lack of exchange of information drove him to needlessly fight the claim in court). Perhaps therefore the better line for a landlord to take would be to heed the recognition that the purpose of section 37A is to encourage fair dealing between the parties, and therefore to correct his representation when that representation becomes false.