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Property Law - Sauce For The Goose But Not For The Gander Intention And '54 Act Renewals

By : Sara Benbow

Lawyers dealing with 1954 Act renewals of business tenancies cannot fail to be familiar with the importance placed upon a landlord's intentions in that context. When opposing an application the landlord must prove genuine intention in relation to the premises. However, the Court of Appeal has recently drawn a sharp distinction between the importance of a landlord's intention and that of a tenant seeking a 1954 Act renewal.

Lawyers dealing with 1954 Act renewals of business tenancies cannot fail to be familiar with the importance placed upon a landlord's intentions in that context. In particular, it is specifically required that the landlord must prove a genuine intention to demolish and reconstruct the demised premises or to carry out substantial works in order to succeed in opposing an application for a new tenancy under s.30(1)(f), and that he must prove a genuine intention to occupy the demised premises himself as a residence or for his business to succeed under s.30(I)(g). Furthermore, it is clear that in order to give a valid counter-notice on either of those grounds under s.26(6) the landlord is required to have the relevant genuine intention to demolish, carry out works or occupy as the case may be [see Betty's Cafes Ltd v Philips Furnishing Store Ltd [1959] AC 20].

However, the Court of Appeal has recently drawn a sharp distinction between the importance of a landlord's intention for these purposes and that of a tenant seeking a 1954 Act renewal. In Sun Life Assurance plc v Thales Tracs Ltd [2001] EWCA CIV 704 it was argued on behalf of the landlord that a tenant must have a genuine intention to take up a new tenancy at the time when he makes a request for one under s.26. It was found at first instance and not contested on appeal that the tenant in fact had no intention to take up a new tenancy when it served its s.26 request, and that its purpose in serving such notice was purely to claim compensation under s.37, the landlord having already indicated an intention to redevelop.

The Court of Appeal held that the tenant's intentions as to the acceptance of any potential new tenancy have no bearing upon the question of whether there has been a valid s.26 notice triggering the right to compensation. The "request" and "proposals" required under s.26 are merely acts and do not call for any examination of the tenant's underlying motives or state of mind. Those words must be given an unqualified and objective meaning. As in Sidney Bolson Investment Trust Ltd v E Karmios & Co. (London) Ltd [1956] 1QB 529, the validity of the s.26 notice should be determined simply by looking at the form of the notice; evidence as to the state of mind of the tenant is not only irrelevant but inadmissible for this purpose.

At first sight this decision may seem unduly to favour the tenant. It clearly permits the initiation of the statutory renewal procedure purely for the purpose of obtaining compensation for the loss of premises which the tenant did not intend to keep in any event. This effectively grants the tenant a windfall without any corresponding fault on the part of the landlord. It was suggested with some force that such an outcome would be entirely contrary to the plain purpose of the 1954 Act and could never have been intended by Parliament. This view was accepted as correct by Mr Recorder Black Q.C. at first instance, who held that it was "inherently unlikely" that Parliament intended any such thing.

However, as Dyson LJ concluded, such a result is not the absurdity that the first instance judge had assumed it to be. On the contrary, given the fact that where a landlord initiates the procedure by serving a s.25 notice relying upon the grounds in s.30(1)(e),(f)or (g) the tenant is automatically entitled to compensation regardless of his intentions, it would be absurd and inconsistent with the philosophy of the 1954 Act as a whole if the position were to be different simply because the tenant serves notice first.

This decision is undoubtedly good news for tenants of business premises, who will be well advised to threaten and initiate the statutory renewal procedure regardless of their ultimate intentions if there is the faintest hint of a s.30(1)(e), (f) or (g) opposition from their landlords. Landlords, however, should continue to approach with caution their negotiations with tenants whom they believe may intend to vacate at the expiry of the current term so as to avoid alerting them to the prospect of compensation wherever possible.