Development Disputes

Skips once more line the streets as landlords seize on opportunities to redevelop their buildings. Many are converting office premises to residential (in line with the politically and economically driven permitted development schemes), others redevelop, reconstruct or carry out substantial construction works to create a redesigned, higher spec property that attracts a higher rent.

Yet securing vacant possession is not always straight forward. Issues often arise when a lease is about to expire contractually, for example.

If that is not in the immediate future, a landlord will need to see whether it has a right to terminate the lease early by exercising an option to break and ensuring that any break conditions are met. Break notices for instance need to be drafted and served carefully. Specialist advice should be soughthere, as the potential to redevelop will be lost if defective notices and service of them cause the landlord to fail to exercise its option properly. Well advised tenants desperate to keep the premises will look for faults with a landlord’s break notice to argue the notice is invalid and so the lease hasn’t been complied with. If the tenant is right, and the landlord has only one opportunity to exercise its option to break, the landlord’s plans to redevelop will be lost until the remainder of the lease term passes.

Additionally, business tenants may also have a right under the Landlord and Tenant Act 1954 (the “1954 Act”) to remain in occupation beyond the contractual termination of the lease. Landlords wishing to carry out a redevelopment need to take steps to oppose the grant of new leases using one or more of the grounds under section 30(1) of the 1954 Act. Section 30(1)(f) (“ground (f)”) will often be used for landlords who intend to redevelop, reconstruct or carry out substantial construction works. This is a complex area that requires a deep understanding of the intricacies of the 1954 Act. Questions that commonly arise are:

  1. Are the proposed works sufficiently substantial enough to require the tenant to give up possession of the premises?
  2. Are the proposed works being carried out to the area of the premises that the tenant actually occupies (as it is those works that are assessed – not the works to the rest of the premises or building)?
  3. Can the tenant take a new lease of all or part of the premises, but give the landlord access and facilities to carry out its works?
  4. Can the tenant take a new lease of an economically separable part?
  5. Does the landlord’s proposed works make the tenant’s ability to remain in occupation for all or part of the premises practically impossible?
  6. Can the tenant carry out some minor works after the landlord’s proposed works that overcome those practical problems?

More than ever, tenants are scrutinising a landlord’s proposed scheme and finding ways to resist giving up possession. Some explore new arguments, or try to revisit what has been fairly well settled law. A recent case dealt with whether the date by when a landlord is required to satisfy the requisite intention to redevelop is the trial date – the law here was seen as settled until this case came to the Court of Appeal. The landlord ultimately succeeded so the position has not changed. However, the landlord’s proposed works were delayed until the case was finally determined – incurring likely extra costs for the landlord and robbing it of the opportunity to secure a higher rent sooner.

Landlords whose redevelopment plans are planned for the future but not yet ready to satisfy ground (f) may be faced with tenants who, strategically, seek to renew their business lease. Landlords come under pressure to serve a counter-notice to oppose the grant of a new lease within the required two month deadline, but if they know that won’t succeed, then they open themselves up to wasting time and costs through court action. More sensibly, landlords should consider offering a new lease to the tenant but seek either a shorter lease term or an entitlement to a landlord’s redevelopment break clause: giving landlords the flexibility to oppose a new lease when ready and able to.

Strategically, some landlords are finding other ways to secure vacant possession e.g. opposing a new lease on the tenant’s breach, or putting pressure on tenants by demanding a higher rent.. Many leases that were entered into in the recession achieving a low rent are now being renewed (or the right to a rent review is being exercised). For some tenants, the new rental obligation has become too costly and so they need to look for alternative premises – prompting more movement within the sector generally and more skips in the streets.

This article first appeared in Property Investor News on 9 March 2015.