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16/11/2009

Little Shop on the Corner

I have the Nearly Legal leadership’s indulgence in allowing me to post about Patel v Keles [2009] EWCA Civ 1187 which touches on one of the more unnatural (at least to housing lawyers) areas of my practice, namely the renewal of business tenancies under the Landlord and Tenant Act 1954, and which may be of interest to a minority only of our readers.

Mr and Mrs Patel ran a newsagent on Tudor Street opposite the main entrance of the Inner Temple and thus familiar to most members of the bar. They were tenants under a lease for 5 years commencing in 2002 of Mr and Mrs Keles whose holding extended to other properties, including the adjacent coffee shop.

The 1954 Act gives (unless excluded by agreement in the proper form) a form of security of tenure to most business tenants (rather better than that afforded to private residential tenants under an assured tenancy). If a landlord is unwilling to renew a tenancy, the tenant may apply to the court for a new tenancy which will be granted unless the landlord proves it has a statutory ground of opposition.

The Patels applied for a new tenancy, their landlords opposed the grant on the ground (found in s.30(1)(g)) that:

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

At trial the Circuit Judge allowed the application, finding that the landlords, and in particular Mr Keles who gave evidence, had failed to establish the requisite intention to occupy. A number of factors influenced the judge. For instance that Mr Keles had been involved in the running of the coffee shop, but had let it for 20 years in 2007; or that Mr Keles had no need, himself, to run his own business from the property.

The most contentious (and interesting) point taken on appeal concerned the judge’s conclusions based on an undertaking given by Mr Keles. It is, apparently, in s.30(1)(g) cases for the landlord to offer an undertaking to the court as a way of assuring the court of its settled intention. Mr Keles did just this, offering:

not to use the premises for two years for any purpose other than as a newsagents’ business carried on by [Mr and Mrs Keles]

My reaction was — what an odd sort of an undertaking to give. The necessary intention required by s.30(1)(g) is positive: to occupy the property to run one’s own business, while the undertaking given was negative in form and would be satisfied by the property lying empty. What is more it is strictly time limited to a period of two years. The judge felt that, not only did the undertaking not assist Mr Keles, it actually hindered him because it put in question his settled intention to run his own business from the property “for the foreseeable future”.

And here is the interesting legal point. What kind of intention does s.30(1)(g) require? Would an intention to run a business from the property for a very brief time and then to sell the property thereafter be sufficient? Both the trial judge and the Court of Appeal held that the proper interpretation of s.30(1)(g) must take into account the provisions of s.30(2), which states:

(2) The landlord shall not be entitled to oppose an application [under section 24(1) of this Act, or make an application under section 29(2) of this Act,] on the ground specified in paragraph (g) of the last foregoing subsection if the interest of the landlord, or an interest which has merged in that interest and but for the merger would be the interest of the landlord, was purchased or created after the beginning of the period of five years which ends with the termination of the current tenancy, and at all times since the purchase or creation thereof the holding has been comprised in a tenancy or successive tenancies of the description specified in subsection (1) of section 23 of this Act.”

Roughly speaking: a landlord cannot use s.30(1)(g) if they bought the property within 5 years of the end of the existing tenancy. If Mr and Mrs Keles had found a buyer who wished to run their own business from the property and sold the reversion of the shop to them before the end of the tenancy, the buyer could not rely on s.30(1)(g) to evict Mr and Mrs Patel but read literally s.30(1)(g) could be understood to mean that Mr and Mrs Keles would be able to rely on s.30(1)(g) in order to take a very brief possession on their own account, already intending to sell the property to an identified buyer.

The Court of Appeal held that Circuit Judge was wrong in concluding that a landlord needed to show their intention under s.30(1)(g) “for the foreseeable future”, but they refused the appeal. In the Court’s view s.30(2) implied some prospective protection into s.30(1)(g), in particular the intended occupation must be more than “short term”. Furthermore if a landlord had a settled intention to sell within 5 years, that would defeat an application under s.30(1)(g). The Court also supported the Judge’s fact finding and the use made of the undertaking.

This case should make it more difficult for landlords to rely on s.30(1)(g) in the future and it may encourage more careful drafting of landlord’s undertakings.

1 Comment

  1. simply wondered

    i saw this case in the county court but had not heard it went to appeal. on the evidence, the practicability of the landlord’s intention was also at issue – he was already committed with various businesses requiring both his time and capital as well as time spent out of the uk. the nature and degree of preparations made by the landlord did not appear to indicate a realistic intention to run the business. he had also expressed the desire shortly to retire abroad.
    obviously these are all questions of fact rather than the point of law you examine above, but relevant to the (imho correct) decision at first instance.

    Reply

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