Establishing intention under the LTA 1954 ground (f) and / or ground (g)

This note looks at what a landlord has to do to establish intention under the Landlord and Tenant Act 1954 (LTA 1954) ground (f), and/or ground (g), whilst also providing some practical guidance for landlords trying to establish it, as well as for tenants trying to challenge the landlord's position.

Grounds (f) and (g)

Section 30(1) of the LTA 1954 sets out the grounds on which the landlord can oppose a lease renewal. Ground (f) states:

“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 that he could not reasonably do so without obtaining possession of the holding”.

Ground (g):

“that on the termination of the current tenancy the landlord intends to occupy the holding for the purposes, or policy for the purposes, of a business to be carried on by him therein, or as his residence.”

The test of intention

The Courts apply the same test of intention under both grounds. The first part of the test is whether the landlord has a firm and settled intention. This is subjective and the Court will consider the landlord’s state of mind.

If the landlord is an individual, the landlord will need to provide a witness statement proving the intention.  The witness will also need to be prepared to give oral evidence to the court. This is the most straightforward way of proving intention. However, if the landlord is a company, it cannot prove its intention in the same way.  It will need to comply with its internal governance requirements to deal with this, which would usually be a board minute. If the internal structure of a particular company requires more than one board resolution, it is for the landlord to show that this has been complied with. Someone authorised by the company will need to give a witness statement explaining what is required and to disclose the documents which show that this has been done. The Judge will either believe the landlord or not.

The second part of the test is an objective assessment of the realistic chance of the landlord implementing that intention. The test is set out in Asquith LJ’s judgment in the case of Cunliffe v Goodman [1950] 1All ER 720 CA, where he said:-

“An “intention” to my mind connotes a state of affairs which the party “intending” – I will call him X – does more than merely contemplate; it connotes a state of affairs which, on the contrary, he decides, so far as in him lies, to bring about, and which, in point of possibility, he has a reasonable prospect of being able to bring about, by his own act of volition… not merely is the “intention” unsatisfied if the person professing it has too many hurdles to overcome or too little control of events; it is equally inappropriate if at the material date that person is in effect not deciding to proceed but feeling his way and reserving his decision until he shall be in possession of financial data sufficient to enable him to determine whether the payment will be commercially worthwhile… Neither project moved out of the zone of contemplation (out of the sphere of the tentative, the provisional and the exploratory) – into the valley of decision.”

It is clear from this that the landlord has to show a reasonable prospect of achieving the intention. If there are too many practical hurdles in the way of the development or the landlord occupying the property, the landlord will not be able to show a reasonable prospect of achieving the intention. On a practical level, the more the landlord has done to deal with any potential obstacles, the easier it will be to show the requisite intention.

In order to prove intention, the landlord should consider the following potential obstacles.

Plans and drawings

Having plans drawn up helps to show that a landlord has settled on a position; be that a scheme of works or to occupy the property. It is likely that the landlord would have to make changes to occupy the property itself. It may be difficult for a landlord to argue that it has the requisite intention if no plans have been drawn up. Without plans, it may be said that the landlord is still considering the options. After all, plans are necessary to obtain any idea of the cost of a project, the timescales involved, whether planning permission will be required and what contracts will need to be put in place.  Therefore, not having plans in place will give a tenant a strong argument to say that the landlord does not have the requisite intention.

Planning permission

Whilst it is not a pre-requisite for a landlord to have obtained planning permission, if it is required, it certainly helps. Obtaining planning permission removes one of the hurdles and demonstrates intention, as a landlord would be unlikely to incur the cost of obtaining planning permission if it did not intend to carry out the works.

If it has not been possible to obtain planning permission in the time available, it does not mean the landlord will not succeed in proving the claim, however, it will be more difficult. The landlord will have to show that there is still a reasonable prospect of obtaining planning permission. Expert evidence will be required to show this which makes the proceedings more risky for the landlord, as they must show that they have a reasonable prospect of obtaining planning permission. It simply puts an extra hurdle in the way.

Finance

A landlord must show on a balance of probabilities that it has sufficient funds to carry out the works.  Therefore, the landlord will have to know how much the works will cost and have evidence that financing for this level of work is in place. A landlord will not necessarily need to carry out cost projections or put works out to tender, and may be reluctant to do that before obtaining vacant possession. However, if it has done these, they will help.

Vacant possession

In the case of ground (f), if the landlord requires vacant possession of other premises in order to carry out the development, the landlord will need to show that it is possible to obtain that vacant possession.  The landlord will need to set out how the tenants occupy the premises and how that occupation will be terminated. This may be straightforward if the other leases are contracted out of the LTA 1954 but the landlord should always be aware of other properties which require service of a section 25 notice opposing a new lease on ground (f). If it is not possible to obtain vacant possession of the whole development for some time, the court may not order a termination of the lease.  A landlord does not need to show that they will obtain vacant possession at termination of the current tenancy but within a reasonable time of that. If a landlord can obtain vacant possession of the whole site within a few months of the trial date, that is likely to be acceptable, but if it would take significantly longer than that it is unlikely the landlord would satisfy ground (f).

Other factors that will help a landlord prove intention are obtaining any necessary consents from any third parties, including the development within a business plan and putting in place building contracts with developers and professional advisers, such as architects and surveyors.

Date of intention

A landlord does not need to prove the relevant intention until the date of the preliminary issue trial (Betty’s Cafes Limited v Phillips Furnishing Stores Limited [1959] AC 20 1 All ER 607). This is important because it enables a landlord to serve a notice before the landlord is ready to carry out the development or occupy the property or has started preparing for it properly provided that everything is put in place by the time of the trial. However, from the tenant’s perspective there is no real point in incurring the litigation costs if the landlord has a genuine intention and can overcome the hurdles because in those circumstances, the landlord will be able to prove the intention.

If a landlord wants a tenant to accept it has the relevant intention under ground (f) or ground (g), the landlord should disclose as much as possible about the proposed works as early as possible. This is likely to act as an incentive for the tenant to settle. However, if the tenant suspects that the landlord does not intend to develop but simply wants them out or that they will not obtain planning permission, the tenant may hold out until trial.

This puts the tenant in a difficult position because a tenant may not want to simply concede if they suspect the landlord’s motive or think the landlord will not be able to prove the intention at trial. Given the current timeframes involved in litigating a preliminary issue, it is unlikely that the landlord will have to satisfy the test and prove that it has the requisite intention until at least 9-12 months after the service of the relevant notice and could be even longer.

There is a balancing act for both the landlord and the tenant. If a landlord has a genuine intention to carry out works or to occupy the property itself, generally it should provide the tenant with as much information as possible as early as possible so that the tenant can take a realistic view, which might save significant costs in the proceedings.

This article originally appeared on the Practical Law website.