Why landlords must take care if opposing a tenancy renewal
In a growing market landlords and developers alike may take the opportunity to develop their holdings. Consequently, an increasing number of tenancy renewals may be opposed. Can a landlord lawfully oppose a renewal on the ground that they wish to redevelop the unit?
A tenant has a statutory right to renew a tenancy within the Business Tenancies (Northern Ireland) Order 1996 (BTO), if the tenancy falls within the remit of those protected. The BTO will apply to a tenancy of a premises occupied by the tenant for the purposes of a business. There are a number of exceptions — most significantly a tenancy with a term no longer than nine months will be excluded.
The BTO promotes the continuation of a tenant’s business, which is particularly important to a long sitting tenant that is well established and accrued years of goodwill in their current location. However, there are a number of grounds under which a landlord may oppose a renewal. Unsurprisingly, some of the grounds are based on the fault of the tenant, such as disrepair of the holding and unpaid rent.
A landlord can also oppose a renewal on the ground that they intend to redevelop. To satisfy this ground, the landlord must intend to either demolish the holding or part of it to redevelop or to carry out substantial works of construction which will require vacant possession.
The landlord must prove to the court of their intention to redevelop and show they have “moved out of the zone of contemplation and into the valley of decision” (Cunliffe v Goodman (1950). To evidence their intention, the landlord may disclose board minutes, a business plan, planning permissions, tenders from construction companies or even applications for finance to fund the project.
The court will not undertake an examination of the viability of the landlord’s proposals for redevelopment, be that financial or otherwise. However, it must be said that a lack of economic viability of the proposal will undermine the landlord’s argument that they have a genuine intention to redevelop.
The long established position of the relevant time the landlord must prove they held their intention was recently challenged by a tenant in the English case of Hough v Greathall Ltd . The Court of Appeal affirmed the earlier position, that being a landlord is not required to prove intention until the date of the hearing, not the much earlier date of service of the notice. This will have been welcome news to landlords, as it provides them with more time to gather the requisite evidence which can be time consuming.
If the landlord can satisfy the court that possession of the holding is required for demolition and/or reconstruction and further that they have a genuine intention to redevelop, their opposition to renewal will be successful. Clearly, the outcome will turn on the facts of each case. If the tenant is unsuccessful with their request for a renewal based on this ground the tenant is entitled to statutory compensation, which is calculated with reference to the net annual value of the holding and the length of the tenant’s occupation.
This ground of opposition available to the landlord provides them with security of tenure in such circumstances, much to the dissatisfaction of long sitting tenants. However, a tenant may be appeased to learn that a landlord or developer keen to progress their proposed project may well approach the tenant with a view of negotiating an early settlement at a higher figure than that set out by statute, to entice the tenant to relocate.
Rachel Toner is a solicitor within the commercial property department of Worthingtons Solicitors and can be contacted on 028 9043 4015