Ground (d): An Unsuitable Ploy?

Context

Where there is a tenancy to which part II of the Landlord and Tenant Act 1954 and the procedural requirements of sections 25 or 26 of that Act have been fulfilled, the statute imposes an obligation on the Court to grant a new tenancy save in very limited circumstances.

1. Under section 24(1): “A tenancy to which this Part of this Act applies shall not come to an end unless terminated in accordance the following provisions of this Part of this Act and subject to the following provisions of this Act either the tenant or the landlord under such a tenancy may apply to the Court for an order for the grant of a new tenancy ….”
2. Under section 29(1): “Subject to the provisions of this Act on an application under subsection (1) of section 24 of this Act for a new tenancy the Court shall make an order for the grant of a new tenancy ….”
3. Under section 29(2): “Subject to the following provisions of this Act, a landlord may apply to the Court for an order for the termination of a tenancy to which this Part of this Act applies without the grant of a new tenancy ….”
4. Under section 31(1): “If the landlord opposes an application under subsection (1) of section 24 of this Act on grounds on which he is entitled to oppose it in accordance with [section 30] … and establishes any of those grounds to the satisfaction of the Court, the Court shall not make an order for the grant of a new tenancy.”

From the provisions of sections 24, 29 and 31(1) it is clear that unless the Court has material before it on which it can be satisfied that the landlord has made out grounds of opposition, it is obliged to order the grant of a new tenancy to a tenant who has made a valid application under the Act.

Ground (d)

The grounds under section 30(1) on which a landlord may oppose an application under section 24(1) of the Act or make an application under section 29(2) of the Act include ground (d), i.e.

“that the landlord has offered and is willing to provide or secure the provision of alternative accommodation for the tenant, that the terms on which the alternative accommodation is available are reasonable having regard to the terms of the current tenancy and to all other relevant circumstances, and that the accommodation and the time at which it will be available are suitable for the tenant’s requirements (including the requirement to preserve goodwill) having regard to the nature and class of his business and to the situation and extent of, and facilities afforded by, the holding”

What we know

There are three things that we can say with relative certainty about ground (d):

1. The “willingness” of the landlord to provide the accommodation will be judged at the date of the hearing: see Betty’s Cafes Ltd v Phillips Furnishing Stores [1959] AC 20; and Chaplin (M) Ltd v Regent Capital Holdings Ltd [1994] 1 EGLR 249.
2. Where the ground is made out, the Court has no discretion to refuse the grant of a new tenancy.
3. If the ground is made out, no compensation is available.

This last point may make this ground particularly attractive to the landlord if it has alternative accommodation which it needs to fill.

What we don’t know

There appears to be some uncertainty about virtually everything else about ground (d). Some of the uncertainty is legal. Some of the uncertainty arises from how the ground will be applied in the circumstances of any particular case. It is perhaps for this reason that this ground has seldom been relied upon in cases which have been pursued to Court (at least at an appellate level). This is in stark contrast to the commonly used grounds (f) and (g). Grounds (f) and (g) can be fulfilled simply by the landlord arranging its affairs in a particular way. The application of ground (d), however, depends on value judgments about the needs of the tenant and the suitability of the alternative accommodation offered. That is something that a landlord cannot readily control. There is thus an inherent uncertainty from the landlord’s perspective when deciding what to offer the tenant. If landlords require certainty (as they usually do) reliance on ground (d) alone is an unsuitable strategy.

The offer: by when must it be made?

We know that it is a requirement of ground (d) that the landlord “has offered” to provide or secure the provision of suitable alternative accommodation. It is not, however, spelled out in the Act by when the offer must have been made. The cases conflict.

In Betty’s Cafes Ltd v Phillips Furnishing Stores [1959] AC 20 at 50 Lord Denning stated:

“If a landlord opposes on the ground that: ‘I have offered you alternative accommodation and am willing to provide it,’ he clearly means that in the past, at some time before the [section 25] notice, he has offered alternative accommodation, and that in the present, at the time of giving the notice, he is willing to provide it.”

However, in that same case Viscount Simonds at 35 took a different view stating:

“It would be a hardship and worse on the tenant, if the relevant date were any other than that of the hearing: it is to his advantage that the opportunity of accepting an offer of alternative accommodation should be open to the last moment, and it is inconceivable that the landlord should at the hearing be permitted to say that, though no longer willing, he had been willing at an earlier date, and therefore could validly oppose the application. Nor would it be reasonable to reduce the time within which the landlord should have the opportunity of finding and offering alternative accommodation. If the tenant complains that he has had too little time to consider its suitability, his grievance can be met by an appropriate adjournment.”

At County Court level, in the case of Chaplin (M) Ltd v Regent Capital Holdings Ltd [1994] 1 EGLR 249 HH Judge Aron Owen took a half way position.

He considered that the words “has offered” in ground (d) pointed to an offer in the past. He said at 251 that “the words, ‘the landlord has offered’ are of little worth to the tenant if … the words do not specify at all the time in the past when such offer must have been made”. He went on to hold that the offer could be made after the service of the notice and held that the ground was satisfied if the offer was made before the issues between the parties were joined in the pleadings, so that an offer of alternative accommodation contained in a letter under cover of which the section 25 notice was served was sufficient.

Having regard to the commercial practicalities and the fact that the procedure envisaged by the Act requires evidence to be produced at a Court hearing, there is much to be said for Viscount Simonds’s view that, provided that the landlord has offered by the hearing at which the ground of opposition has to be established, then he has satisfied the requirements of ground (d). Such an interpretation is consistent with the approach taken as to when the landlord must “intend” to carry out works or to occupy for the purposes of grounds (f) and (g). The matter, however, is plainly open to argument.

The offer: contents to be judged at what date?

Following from the first issue, there is no binding authority which decides whether the offer (whenever made) must satisfy the requirements of suitability and reasonableness (i) at the date of the hearing or (ii) the date of the offer or (iii) before the joinder of issues in the pleadings or (iv) some other date, e.g. before the end of the trial. The answer to this question affects the related question of whether the landlord may revise his offer. It was expressly left open by the Court of Appeal in the unreported case of Mark Stone Care Sales Limited v Howard de Walden Estates Ltd (30th January 1997 cited by Reynolds & Clark, Renewal of Business Tenancies 3rd edn., at para 7-61) whether the Court is limited to considering the terms of the original offer of alternative accommodation made before service of the landlord’s counter-notice, whether it may consider the terms of an offer made for the first time before issue is joined in pleadings or whether it can consider the terms of an improved offer made by the landlord before the end of the trial.

It seems to be relatively clear that the conditions of reasonableness and suitability must be established at the date of the hearing (albeit that an assessment of suitability looks to the date at which the alternative premises “will be available”) and not just at the date of the offer. If this were not so, the tenant would be deprived of his tenure even though suitable accommodation was not in fact available to him, which would seem to undermine the
purpose of the Act and this ground. The question is whether these requirements must also be made out earlier.

If the offer must be made before the trial (as suggested in Chaplin and by Lord Denning in Betty’s Cafes) it might be argued that the contents of the offer must at the date of the offer fulfil the requirement if ground (d) (i.e. whether accommodation is suitable etc). However, this seems to be an unnecessary burden upon the landlord and unnecessary to provide sufficient security of tenure for the tenant. In Chaplin HHJ Aron Owen held that the conditions of suitability and reasonableness need only be satisfied at the hearing and not prior to that date.

If the dicta of Viscount Simonds quoted above are followed then in practice there may be no practical difference between the date by when the offer has to be made and the date at which the requirements of ground (d) must be satisfied because the offer need only be made by the hearing. What is more, there would seem to be nothing in principle to preclude the landlord from revising an earlier offer prior to the date of the hearing. This is consistent with the approach taken to grounds (f) and (g), where it is only at the date of the hearing that the landlord need establish his intention and it does not matter that he has previously had different plans. It is also workable: it allows the landlord to take account of any representations which the tenant may make in its defence about the sort of accommodation which it needs. It also fulfils the statutory purpose of the Act which is plainly to give the tenant a new tenancy unless suitable alternative accommodation is available (if no other grounds for depriving him of a new tenancy exist). Provided that the Court is satisfied at the date of the hearing that alternative accommodation will be available on reasonable terms and is suitable it is difficult to see any good reasons of policy why these elements also need to established any earlier.

Offer: contents and formalities

Ground (d) requires that “the terms on which the alternative accommodation is available are reasonable”. It is not expressly provided, however, whether the offer itself must spell out those terms in detail. If the offer need not be made until the hearing, again, it may make little practical difference whether the formal offer contains such terms since the Court will need before it evidence of the terms on which the alternative accommodation is available in order to assess whether those terms are “reasonable”.

Similarly, it is not expressly provided whether the offer must be one which is capable of formal acceptance by the tenant, i.e. whether the landlord should present a document which will allow the tenant to accept an agreement for lease in terms compliant with the Law of Property (Miscellaneous Provisions) Act 1989 or whether it is sufficient merely that the offer be made in essence “subject to contract” or “subject to formal lease”. All that is required is “an offer” and given the complexities of modern drafting (even by the standards prevailing in 1954), it would perhaps be impracticable to require an offer to be made in a form capable of legal acceptance without further discussion. The point, however, is open to debate. If the offer is not capable of being accepted and made binding, then it seems that the tenant has little protection unless and until a lease or agreement for lease is entered into.1This problem overlaps with the questions considered under the next heading.

Terms on which accommodation available

The words of the statute seem clear enough. The terms on which the alternative accommodation is available must be “reasonable having regard to the terms of the current tenancy and to all relevant circumstances”. This mirrors section 35 which deals with the terms of a new tenancy granted by the Court. In principle the same sort of considerations will apply as applied in O’May v City of London Real Property Co Ltd [1983] 2 AC 726. Plainly, the “terms” for the purposes of ground (d) will include terms as to rent and duration. “Reasonableness”, however, is a broad concept and from a landlord’s perspective is bound in many cases to lead to considerable uncertainty. It is important to note that on the face of things the exercise for the court is to determine whether the terms on which the alternative premises have been made available by the landlord are reasonable. It is not fixing the terms of the new tenancy as such (contrast the exercise where a new tenancy is ordered under the 1954 Act). Accordingly, if the premises are available on terms which are unreasonable, the landlord will have failed to make out its ground. It may be possible, however, to make an offer “on such terms as the court considers reasonable” (compare Chaplin and Reynolds & Clark, Renewal of Business Tenancies 3rd edn. Para 7-62). If such an offer were made, it could be said that any terms fixed would ex hypothesi be reasonable and the offer was sufficiently certain (since it could be rendered certain). On that basis, however, the landlord would be committing itself to the grant of a tenancy the precise terms of which were inherently uncertain until fixed by the Court.

More specifically, although there is no express requirement that the terms on which the alternative accommodation is offered should not exclude the application of Part II of the Landlord and Tenant Act 1954, it seems most likely that a Court would hold that an offer on terms which purported to exclude the Act from a new tenancy would be unreasonable or outside the scope of what was contemplated by ground (d): ex hypothesi such tenure attached to the terms of the current tenancy and such tenure would also apply to any new tenancy of the existing premises which the Court granted see e.g. National Car Parks v The Paternoster Consortium [1990] 1 EGLR 99 at 102 J-K.

One question which has arisen in practice, however, is whether the tenant can require the landlord to bear the tenant’s removal costs In effect, require the landlord to pay an element of compensation for disturbance even though ground (d) is a non-compensatory ground. The matter is open to argument. It can be said that the “terms” mentioned in ground (d) must be the terms of the new lease as such and do not extend to costs which pre-date occupation. Against that, on the face of ground (d), the words include any terms whether or not they take account of pre-occupation costs: a term that the landlord will pay £x if the tenant moves to alternative accommodation (x being calculated by reference to removal costs) is naturally a term “on which the alternative accommodation is available”. If removal costs would in effect put a small tenant out of business or severely hamper its business, it would be quite arguable that terms which did not compensate the tenant for such costs would defeat the purpose of ground (d) which is plainly to provide the tenant with accommodation in which it may continue its business. The absence of express compensation could be said by the Tenant not to affect the force of such an argument which turns on a judgment about whether the terms on which the premises are available are “reasonable” in all the circumstances.

A similar (but wider) point can be made about “inducements” to tenants generally. In the market, a landlord often includes inducements to tenants as part of the terms of a new lease e.g. rent free periods for fitting out or just as a pure inducement. It does so in order to make the premises attractive to the tenant. If the tenant could reasonably expect some such inducement in relation to other new premises and/or the landlord would have to offer such inducements to any third party which it might wish to attract to the alternative accommodation if it were not taken up by the tenant, why should the tenant not receive such an inducement in relation to the alternative premises offered by the landlord? Particularly since it is giving up the premises which it is vacating? Indeed, it might seem pretty unreasonable not to include the terms of such an inducement within the terms on which the alternative accommodation is available.

Suitability

On the face of ground (d) both (1) the “the accommodation” and (2) “the time at which it will be available” must be “suitable for the tenant’s requirements (including the requirement to preserve goodwill) having regard to the nature and class of his business and to the situation and extent of, and facilities afforded by, the holding”.

Whether premises are suitable involves a value judgment. It appears that this is something that must be objectively assessed having regard to usual commercial criteria. Thus, in the unreported case of Tak Pin Yeung v Waller Investment Trust (2003, HHJ Hallgarten QC noted at by Reynolds & Clark, Renewal of Business Tenancies 3rd edn., at para 7-69) the tenant’s views about the suitability of the premises based upon Feng Shui were not material considerations. Subject to that, each case will be viewed in its own circumstances.

“Goodwill” cannot mean the goodwill attached to the existing premises as such but of course the goodwill of a particular business may be affected by the extent of a move. Clearly, the “goodwill” attaching to (for instance) a call centre, for which the choice of site does not on the face of things depend on the qualities of any particular location, is unlikely to be affected by a move from a very specific location; but the “goodwill” attached (say) to a Jermyn Street shop might be substantially affected if, to posit an extreme example, it were suggested that it should be moved to Brick Lane.

The words “the time at which [the accommodation] will be available” suggest that the Court must be satisfied at the least that the accommodation will be available when the tenant is obliged to give up its current premises at the end of its current tenancy. Under section 64 the current tenancy will continue until three months after the final disposal of the tenant’s application for a new tenancy or the landlord’s application under section 29. It is unlikely that this requirement will entitle to the landlord to argue that the accommodation is suitable if it is available for the tenant to take up before the end of that period but is not available at the end of the current tenancy: the tenant is entitled to remain in its current premises until the end of the period specified in section 64 and the Court will probably take the view that the requirements of ground (d) cannot in effect be used to compel the tenant to give up its current premises before the end of that period if it is to take up alternative accommodation. On the other hand, it might be possible for the tenant to argue that the premises should be available before the end of the three month period provided under section 64, if for operational reasons a move needed to be made sooner, or even after that period (though it seems unlikely that the requirements of ground (d) would allow the tenant to argue that it should be allowed to remain in its current premises for longer than required under section 64). All this is, however, speculation because none of these issues has been tested in Court.

Availability and what happens if the premises cease to be available after the hearing?

Ground (d) requires “that the terms on which the alternative accommodation is available are reasonable having regard to the terms of the current tenancy and to all other relevant circumstances, and that the accommodation and the time at which it will be available are suitable”. First, to provide the tenant with sufficient security it seems to be tolerably clear (taking a purposive approach) that the alternative accommodation must be shown at the date of the hearing to be available when the current tenancy ends. Yet that is inconsistent with the use of the present tense “is” which does not look to the future and would point to accommodation only having to be available at the date of the hearing. Such a literal reading, however, would appear to conflict (1) with the scheme of the Act which envisages the current tenancy continuing for three months after the final disposal of the application for a new tenancy (see section 64) and (2) the provisions of ground (d) itself which require consideration to be given to “the time at which [the premises] will be available”.

While this undecided question seems relatively easy to resolve, other harder questions remain: do the premises also have to be available at the date of the offer and/or at the date of the section 25 notice and/or the date when the parties join issue in the proceedings and/or at the date of the hearing itself?

If Lord Denning’s approach were taken it might indicate that it was necessary to consider availability when the offer was made i.e. (on Lord Denning’s view) before the section 25 notice was served. Lord Keith, like Lord Denning, concluded that the grounds had to exist at the date of the landlord’s section 25 notice. Indeed at pp 46-47 he said:

“I should have thought that when Parliament provided for the notices to be given by the landlord under section 25 and section 26 of the Act it contemplated that the grounds on which the landlord has to state that he would or will oppose an application to the Court for a new tenancy would be in existence at the time of the notice. This, I should have thought, was clear where the notice was given under section 25, for I cannot understand a landlord, who wishes to terminate a tenancy, being thought to state a ground of opposition to a possible application for a new tenancy that did not exist at the time of his notice…

“Ground (d) raises a somewhat different point, for it speaks both in the past and in the present. Here I would be prepared to read “is willing” as involving an element of continuing willingness. It must mean, I think, is willing at the time of the notice and at the time his opposition commences. What is to happen if the alternative accommodation offered thereafter disappears is a problem that may some day have to be considered, for a tenant may well think that he has good reason for resisting the offer on the ground that the accommodation offered is not reasonably suitable.”

On the other hand, Viscount Simonds in Betty’s Cafes suggests that only at the date of the hearing would the landlord need to prove availability (though he does not directly address the question of whether the premises must be shown simply to be available when the tenancy ends): he said it would not “be reasonable to reduce the time within which the landlord
should have the opportunity of finding and offering alternative accommodation.”

Again, practicability and Viscount Simonds’s pragmatic approach points to a requirement only to prove at the date of the hearing that the premises are to be available at the end of the current tenancy.

Secondly, and of more concern, is what happens if the premises cease to be available after the hearing (the point raised by Lord Keith above). What of the possibility that the landlord might renege on its offer (intentionally or otherwise)? This is not dealt with in the Act. On the face of things, the tenant has no protection. To establish availability at the end of the current tenancy, therefore, the Court might require a high degree of assurance that the premises will remain available: a landlord might need to give the Court an undertaking that it will provide the accommodation and satisfy the Court as to its means to comply with that undertaking.

Conclusion: some legislative tweaking?

We have seen a number of uncertainties surrounding ground (d)). No doubt for these reasons this ground is seldom relied upon in cases which have been pursued to trial.

That said a “suitable alternative accommodation” ground of opposition fulfils a sensible and obvious policy objective: why should a landlord be kept out of possession of premises if the tenant has available to it suitable alternative accommodation? To ensure that the clear objective of ground (d) is fulfilled and to provide certainty by hearing off argument, it would make sense for Parliament to clarify the drafting of the ground so that the parties may have greater certainty. The drafting would only need some minor tweaks.

Jonathan Karas QC

Note: This article will appear in a book of essays by members of Wilberforce Chambers relating to the development of land. This is due to be published in the autumn of 2012.