When a Guest outstays their welcome: the court’s discretion in opposed lease renewals in the UK

On a protected lease renewal, a landlord may rely on the following "fault" grounds to oppose the grant of a new lease: 

(a) Failure by the tenant to comply with its repair and maintenance obligations

(b) Persistent delays in paying rent; and

(c) Other substantial breaches of the tenant's obligations or for any other reason connected with its use or management of the holding.

In addition, the court has a discretion to refuse the grant of a renewal lease  where it considers the tenant "ought not to be" granted a new lease. It was the nature of this discretion that arose in the recent case of  Kent v Guest.  On appeal to the High Court,  when asked whether a tenant ought not to be granted a new lease, the court  confirmed that it would take a holistic approach to exercising its discretion where a landlord seeks to rely upon the fault grounds.  

Facts

Mr Kent was the landlord of approximately 40 acres of land, which included Ingmanthorpe Racing Stables.  Mr Guest, a racehorse trainer, lived in a static caravan on the site and was granted a one-year tenancy which was initially contracted out of the security of tenure provisions under the Landlord and Tenant Act 1954. However, when the parties entered into an additional one-year tenancy in 2017, Mr Guest was inadvertently granted a protected lease which was subject to the security of tenure provisions in the 1954 Act. Mr Guest was not a model tenant and Mr Kent opposed the grant of a new tenancy relying on the fault grounds set out in the 1954 Act (failure to comply with repair obligations and other substantial breaches of the tenancy).

The court found on fact that the property was a "mess". Further, Mr Guest had made structural alterations which were not permitted, was carrying on business not permitted under the lease, had been burning trade waste in breach of local authority warnings and had failed to insure the premises as required by the lease. Taking all of these breaches together, the court held that Mr Guest should not be granted a new business tenancy and that Mr Kent was entitled to vacant possession of the property.

The Appeal

The appeal to the High Court concerned the interlinking between the fault grounds and whether, in exercising its discretion under the 1954 Act, the court was entitled to consider breaches of repair and delays in paying rent.

The relevant provision in the Act requires a two stage approach.  First, the landlord must make out the relevant ground of opposition.  In other words, a landlord must demonstrate that there have been sufficiently substantial breaches so as to fall within the relevant fault ground. The second stage is for the court to consider whether, in light of such breaches, (and any other reasons),  the tenant "ought not to be" granted a new tenancy.

Mr Guest sought to argue that the second stage of the exercise (ie the court's exercise of its discretion) should be a separate consideration under each category of fault. The Tenant argued that when considering "other substantial breaches" or "any other reason connected with the tenant's use or management of the holding" the court was precluded from having regard to any breaches of covenant that fell within the other fault grounds of repair and maintenance or delays in payment of rent.

On the tenant's analysis, the court would be entitled to take into account reasons relating to the use and management of the holding that did not amount to a breach but would not be able to take account of the most significant obligations that a tenant has under its lease, namely its repair obligations and the obligation to pay rent! 

Conclusion

The court had "very real doubts" that this was the correct approach.  In particular, the court was influenced by the fact that an isolated approach to each of the fault grounds could have unjust results for landlords.  In particular, the court noted that a tenant could, for example, breach its repair covenants or delay in its payment of rent which, when viewed on its own, may not mean the tenant should be denied a new tenancy but when viewed together (as it rightly should be), the combination of the breaches could be significant enough for the court to conclude that it would be unfair to on the landlord to compel it to grant a new lease to the tenant.

The court was, unsurprisingly, not persuaded by the tenant’s case and found in favour of Mr Kent resulting in Mr Guest being refused a new business tenancy.

Next steps

This will be welcome news for many landlords that are considering opposing a lease renewal on the fault grounds.  Landlords should particularly consider the extent and scope of all of its tenants' breaches under the lease, when a 1954 Act lease expiry is looming.

 

 

Authored by Rachel Lindberg
 

Contacts
Rachel Lindberg
Associate
London

 

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