Ending a business tenancy to redevelop

Section 30(f) of the Landlord and Tenant Act 1954 concerns intention to redevelop. If a landlord can prove this ground, it can end its tenant’s business tenancy, but it’s not always easy to prove, as shown by Pridewell Properties (London) Limited v Spirit Pub Company (Managed) Limited.

Section 30(f) of the Act

A real chance must be shown that:

“on the 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”.

The Pridewell case

Sprit Pub Company (Managed) Limited had been the business tenant of a pub since October 2007 under a tenancy protected by the Act. Pridewell Properties became their landlord in November 2014.

Pridewell wanted to redevelop the pub in an extended and reconstructed part of the existing building, but also to build three new mews houses in the beer garden area.

At trial

The judge decided that Pridewell had only failed to show that there was a real chance of its directors providing guarantees of sufficient value to support Pridewell’s borrowing to fund the scheme. Spirit was therefore entitled to a new tenancy.

Appeal to the High Court

On appeal, Pridewell asserted that the judge didn’t need to address guarantees, since the value of the premises was sufficient security for the scheme.

Spirit asserted on appeal that Pridewell should have failed on the rest of its case, which concerned its chances of obtaining planning permission and funding, starting the relevant works on termination of the tenancy, as required by the Act, and the existence of a restrictive covenant dating back to 1870, the terms of which were unknown, being a further barrier to redevelopment.

High Court’s decision

Pridewell’s ground

Dismissed. It was uncontested that personal guarantees of substantial value would have been required by the lender. Pridewell didn’t show that the same would be provided or that they would be satisfactory.

That disposed of the appeal, but the High Court went on to determine Spirit’s response grounds.

Spirit’s grounds

1. Existence of the restrictive covenant

Dismissed. It was self-evidently a real prospect that no one would know of the covenant or seek to enforce it. Further, even if anyone did know that they had the benefit, there was a reasonable chance that a restriction of that age could be modified under section 84(1)(aa) and (1A) of the Law of Property Act 1925, on the basis that, in 2025, it no longer secured a substantial benefit to the holder of the rights.

2. Obtaining funding due to restrictive covenant

Dismissed. Despite Pridewell having adduced no evidence about obtaining a restrictive covenant insurance policy, the willingness of insurers to provide one, the bank or other lenders to accept it or about the extent of the risk, this was a classic case for an indemnity policy. The judge was entitled to come to that common-sense view.

3. Planning permission

Upheld. Despite planning permission not being required to prove ground (f), it does mean that the court has to assess the chance of obtaining the same later than the date of trial.

There were two planning policies to be satisfied before planning permission could be granted in this case. Pridewell had not shown how one of them would be, and the judge did not address the same, nor conclude what evidence of viability might be put before the planning committee.

4. The 10-14 month delay

Upheld. The High Court decided the judge asked the wrong question. He asked whether a delay of 10-14 months was reasonable in the sense of ‘justified’.

Pridewell being unable to proceed with the planning application because Spirit wouldn’t permit entry onto the premises was irrelevant. That was the parties’ bargain. It explained why a reasonable estimation of the time required to be able to start the works was 10-14 months after the possession date, but that didn’t mean that the landlord intended to carry out the works at (or within a reasonably short time of) the termination of the tenancy.

A landlord’s ground of opposition will not necessarily fail if it doesn’t have planning permission in place at the date of trial. Crucial is whether there’s a real prospect of obtaining it in time to start the works within a reasonably short time of termination of the tenancy.

Practical points for landlords

Landlords should bear in mind the following if they wish to terminate a protected business tenancy on this ground:

1. Landlords should be ready at trial to cover off, by evidence, each potential obstacle to their proposed redevelopment
2. Related to this, while the first-instance judge was entitled to take a common-sense view concerning the indemnity insurance for the restrictive covenant, appeal courts don’t like interfering with a judge’s evaluation of the facts. A landlord is better advised to adduce evidence on each obstacle as stated, and Pridewell had produced no evidence that such would be acceptable to its lender, or any other
3. While planning permission isn’t an absolute requirement, it’s probably going to be more difficult and costly, as part of the litigation process, to prove intention without it. A planning application made before the trial should help
4. Pay attention to conditions of funding for the redevelopment and ensure you can show a real chance of satisfying them

Whether there’s a real chance that redevelopment works will start within a reasonably short time of termination of the tenancy will be fact-specific and therefore a matter for assessment. Straying into months, however, is going to present a real risk of not proving timely intention to redevelop.