Commercial landlords looking to oppose the renewal of a commercial lease which has the protection of the Landlord and Tenant Act 1954 (‘LTA 1954’) on redevelopment grounds should take note of a recent Court of Appeal decision of Inclusive Technology v Williamson. In this case the tenant was awarded additional compensation arising from the landlord’s misrepresentation that he intended to redevelop the property and then changed this mind.
The “redevelopment” ground is quite commonly used by Landlords (whether the intention to develop is real or not) to ask tenants to leave at the end of a lease. Landlords usually factor into their planning that they are likely to have to pay compensation for disturbance should they be successful in removing the tenant. Most landlord’s view however is that compensation is limited to one or two times the rateable value of the premises which is a quantifiable and reasonable price to pay to remove the tenant and enable the redevelopment to proceed
However the new case illustrates a change to the legislation introduced in 2004 (s.37A(2) of the LTA 1954) which until now has not reached the courts. It is clear that now there is the possibility of paying the tenant an unquantifiable and unlimited amount of additional compensation, on the basis of misrepresentation.
The facts of Inclusive Technology v Williamson illustrate the current economic conditions – a landlord served a section 25 Notice opposing renewal on redevelopment grounds. The landlords also provided the tenant with details of the redevelopment plans. The tenant wanted to remain in the premises but accepted that it would need to leave the premises and relocate elsewhere.
However due to a change in economic conditions the landlord put its redevelopment plans on hold and crucially failed to inform the tenant of his change of mind and allowing the tenant to leave. There was not necessarily an intention to deceive – the landlord simply did not think to tell the tenant.
The Court found that the landlord’s covering letter enclosing the section 25 notice which explained the need for the premises to be vacated in order for the redevelopment work to be carried out constituted a representation. Once the representation had been made there was a duty on the landlord to correct this statement when the circumstances changed. As the Landlord failed to do this compensation was payable for misrepresentation.
As to the amount of the compensation, in this case the tenant’s claim was limited to the increase in rent in relation to the new premises it had moved to but it could of included a claim for loss and profits. Suffice to say the level of compensation could be substantial in other circumstances.
Further cases in this area will no doubt follow. The case does provide some guidance but it does leave the door open for claims against landlords for misrepresentation. Clearly the courts are addressing an perceived inbalance between landlord and tenant especially where the landlord has not acted fairly.
Landlords will need to be careful when considering such redevelopment plans (and any other no fault ground under the LTA 1954) and professional advice should be sought. Broadly the landlords should consider:
- the exact nature of the work needed to be carried out and whether the possession is required to complete the work;
- if when and how to update tenants if their plans change ; and
- whether they can safely serve speculative section 25 notices.
For further assistance on Commercial Property lease renewals and section 25 notices call Merwyn Emmanuel at kenneth elliott + rowe solicitors on 01708 757575 or email firstname.lastname@example.org