Refusing a Lease Renewal In Favour Of a Building Lease

Whether a landlord could demonstrate firm intention to redevelop property.

The background

In Santander UK plc v LPC Estates Ltd [2018], the applicant requested the grant of a new lease from the respondent landlord following expiry of its existing lease pursuant to the Landlord and Tenant Act 1954 security of tenure provisions.

The landlord refused to grant the new lease. It had, however, entered into a building lease with a third party and stated that it intended to redevelop the property, requiring the new tenant to undertake the redevelopment works. In order to grant the new tenancy, the landlord was required to prove that it intended to redevelop such that that the new lease to the applicant could not be granted.

The decision

The High Court found in favour of the respondent landlord in considering whether the landlord had sufficient intention to redevelop. The landlord had chosen the works to be undertaken by a third party by way of a building lease. The Court referenced Spook Erection Ltd v British Railways Board [1988], which found that the landlord’s grant of a building lease was sufficient to demonstrate intention to redevelop even though the lease was entered into primarily to satisfy the requirements of the Landlord and Tenant Act 1954.

The High Court could find no reason to depart from the decision in Spook and the landlord therefore succeeded.

Advice and action for landlords

Where landlords may wish to redevelop or reconstruct a property, this case provides a helpful guide in situations where existing commercial tenants occupy with security of tenure. By granting a building lease to a third party, notably where that party will then go on to occupy the property, firm intention to redevelop can be demonstrated without a ‘gap’ period where the landlord has possession of the property itself in order to undertake works.

This decision is helpful for landlords; not only does it present an opportunity to redevelop and create better return on investment, but by granting a building lease to a future tenant the responsibility for redevelopment, together with its associated risks and costs, is assumed by a third party.