The Practicality of “Hostile” Lease Terminations Ground F- Redevelopment

 

“Hostile” terminations under S30(1) Landlord & Tenant Act 1954 are on the increase.  But with Tenants increasingly disputing such “hostile” notices, landlords cannot assume that the courts will accept their stated intention at face value.  In the first of 2 articles John Williams considers the practicalities of evidencing a landlord’s intention and ability to redevelop and some of the elements a landlord’s legal team should look to a coordinating Surveyor to contribute.  In the second he will consider a landlord’s intention and ability to occupy the premises for themselves.

Section 30(1) LTA 1954 provides seven grounds under which a landlord of a protected tenancy can object to its renewal; the most frequently cited being Grounds G (own occupation) and F (development – or more accurately intention to demolish or carry out substantial works of construction).

We all know the theory.  If the landlord intends to redevelop then he is entitled to possession.  However, the practicalities are far from this straightforward and a landlord will need to be properly prepared if he is to demonstrate his intention AND his ability.  So what should a landlord’s team be looking to present to the court to secure possession under these grounds and how can a Surveyor, coordinating this aspect, assist?

The Works

It may seem like such an obvious point but it is one that is often dealt with inadequately, especially by private landlords of small properties who do not engage the resources that larger developers do.  Generalizations will put the landlord firmly on the back foot in any hearing.  He will need to present a clear picture of the property as it is currently configured, the property as it will be configured after the works and the detail of the works that will be undertaken to bring about this change.  A full specification may not be necessary, and in many cases cannot be provided as access to prepare this is unavailable whilst the existing tenant is in occupation, but a clear and detailed description, supported by ‘before and after’ plans is an absolute minimum.

Your coordinating surveyor should keep a watching brief on the nature and description of these works, should ensure that any drawings are kept up to date and that any changes feed off into each of the other aspects that will need to be evidenced to demonstrate an intention and ability.  For example a Party Wall Award for the wrong works will do more harm than good to the landlord’s case!

Planning Consents

If consent is required, there is often a delicate balance in timing between making a planning application, thereby tipping off the tenant, risking a short dated S26 Notice and truncating your preparation time, and making sure you have time to complete the planning process, including appeals and S106 agreements if these are needed.

However, not every development proposal will require planning consent.  Some may constitute permitted development or may, in fact, not constitute development at all under S55(2) Town & Country Planning Act 1990.  A coordinating surveyor can often bring a different approach to the proposals that that will ease the problems of planning consent.  I recently acted in a case where an A5 (Takeaway) occupier’s landlord wanted to redevelop the upper floor for residential use.   Had his approach been to retain the A5 use and to take back the upper floor for residential redevelopment he would have required planning permission, something he had failed to secure in the past, and this would probably have prejudiced his claim to terminate the protected lease.  However, by taking a different phased approach this problem was avoided.  A change from A5 to A1 (retail) use on the ground/basement was permitted development.  If A1 use was established on ground/basement the conversion of the 1st floor from ancillary space to a single residential flat constituted permitted development and the other works, whilst significant over all floors, were internal and did not affect the external appearance of the building meaning that they were not development under S55(2).

Whether planning consent is needed can often be established by submitting formal Pre-Application Advice requests to the Planning Authority or, if a more formal confirmation is required, submitting an application for a Certificate of Lawful Development.  These are not subject to public consultation and so will not need to be notified to the tenant.  Having these can also save greatly on trial time and cost.  Many a time I have been involved in cases where a tenant has sought to introduce Expert Planning Evidence into Directions at a CMC hearing only for the Pre-Application Responses or CLD to lead the Judge to ask why he should need Expert Opinion on whether a landlord is likely to secure a planning consent that they do not require in the first place.

It is also important not to forget the potential need for Building Regulations Consent.  Is a full application required or can the matter be dealt with through a Building Control Inspector during the works.  If the latter, your coordinating surveyor should have made sure that one has been appointed before the trial.

Party Walls

If the works either involve, or are sufficiently close to, party walls they may trigger the Party Wall Act.  If so, failing to have the necessary Party Wall Awards or Agreements will be a serious shortcoming for a landlord and will raise a substantial question over his ability to undertake the works.  Your coordinating surveyor should identify whether the act is triggered, in relation to which Adjoining Owners and should ensure that all Adjoining Owners have had notices served and are covered by awards or agreements.

Possession

If the property comprises a single Holding then there is no need to coordinate the termination of all of the tenancies.  If it comprises several Holdings, though, it is important to ensure that you have access to all of the areas that are needed to undertake the development, including builders’ compounds and access routes.  This doesn’t sound complicated but I have often seen respected national practices get this aspect wrong.  In one classic case the property comprised four large ground floor retail units with upper floor ancillary, which the landlord sought to redevelop into six retail units of better configuration and size and to redevelop the upper floors for residential purposes.  Terms had been agreed with the largest retail occupier to remain and a non-hostile notice was served on them for the whole of their Holding, hostile notices being served on the other retailers.  Unfortunately a small area in the first tenant’s Holding was needed to provide fire escape routes from one other retail unit and from half of the flats.  As a result they lacked the ability to undertake the development and new leases were ordered.  Had a coordinating surveyor been involved they could have served a notice on the first retailer based on Ground D (Suitable Alternative Accommodation) on the basis that only a 1.2m x 3.0m area was needed from the large demise and would not have impacted on the tenant’s ability to operate.

Letting

Expert Opinion on the lettability and rental value of the end development is all well and good, but it is no replacement for having in place agreed Heads of Terms or even an Agreement to Lease. It should be part of your coordinating surveyor’s role to liaise with the letting agent to keep them apprised of the physical proposals, to feed back any prospective tenant’s requirements that may need variations in the proposed development, to push forward a letting via an Agreement to Lease, to feed back the letting terms into any appraisal exercises and to ensure that any long stop dates for giving vacant possession to the new tenant are in keeping with the development’s timeframes, including any trial and appeal windows.

Landlord’s Intention

For a Limited Company, this may require multiple memoranda of intention as a project evolves and your coordinating surveyor should continue to check that the latest evolution of the project is fully compliant with the current memo and the board report upon which it is based.  Updated reports and provisional viability studies should form a basic part of this role, including sensitivity analysis to show the project’s viability as rents, costs or yields potentially vary.

It needs to be remembered, however, that it is not for the tenant to challenge the viability of the development.  The landlord is perfectly entitled to undertake a development that shows a loss if that is his genuine intention.  The question of a lack of financial profit can only be considered to the extent that it evidences whether the landlord’s intention is genuine.

Again I have been involved in numerous cases where the court has either refused to allow Expert Valuation Evidence, to assess the viability of the proposals, or has been perfectly willing to order possession be returned to the landlord where viability was questionable but other evidence clearly showed the landlord’s intention to be genuine.

Landlord’s Experience

If the landlord has been involved in similar development schemes before, this is likely to strongly reinforce his position.  Your coordinating surveyor should make sure that he is aware of these other projects, is aware of their similarities to the current proposals and that he can present this experience within the context of the current proposals.

Landlord’s Ability

There are several aspects to this.  Is the funding available to the amount required?  Your coordinating surveyor should keep the team advised on the cost and funding requirements and should also be feeding back into the provisional appraisals the financing ratios and costs.

Is superior landlord or mortgagee consent required?  Again, it is vital that any such consent reflects the project properly so it is essential that the coordinating surveyor keep the parties apprised of variations, ensure that consent documentation reflects the current project and that it will be available within the required timeframe.

Evidential Report

Finally, in my experience it has always proved extremely helpful for the landlord to provide an overview Witness Statement to the court from the coordinating surveyor explaining the landlord’s position on all of these elements, presenting the supporting evidence and giving a single document to evidence the landlord’s intention and ability.  It makes life as simple as possible for the judge to examine this question and can be a highly persuasive document.

 

John Williams is a Fellow of the RICS, an Associate of the CIArb and a Member of the EWI.  He has over 24-years’ experience of acting on hostile lease terminations for both landlords and tenants in connection with retail and mixed use properties.

john.williams@mapleleaf-pc.co.uk

Tel: 01242 861155

Fax: 0207 692 4887

Mob: 07506 727727

 

www.mapleleaf-pc.co.uk

 

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