Misrepresenting development intentions: don’t slip up

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Tricky tenants – we’ve all dealt with a few. If a protected business tenant decides to vacate as a result of the landlord’s stated intention to redevelop, it might be tempting to stay schtum if the landlord’s redevelopment plans subsequently alter.

In the case of a particularly awkward customer, this might seem like a lucky escape. However, the reality is that the landlord might find itself subject to a misrepresentation claim and embroiled in lengthy litigation.

Under section 37A of the Landlord and Tenant Act 1954 (introduced in June 2004), a landlord can be ordered to pay compensation to its tenant if a misrepresentation or a concealment of facts by the landlord has either induced the tenant not to make or pursue an application for a renewal tenancy, or has persuaded a court not to grant a renewal tenancy. This is the case even if no 1954 Act notices have been served.

A misrepresentation includes not correcting a statement which was initially true, but has subsequently become inaccurate.

The 2014 case of Saturn Leisure Ltd v Havering London Borough Council concerned an ice rink in Romford. Saturn operated the rink on behalf of the Council pursuant to a management agreement which stated that Saturn was not intended to have exclusive possession.

Saturn ceased trading and the Council entered into a land swap agreement to transfer the site to Morrisons, in exchange for another site in Romford on which to build a new ice rink. The agreement required the Council to provide vacant possession of the existing ice rink site.

The Council served an opposed section 25 notice on Saturn (relying on the grounds of persistent non-payment of rent and the landlord’s intention to redevelop). The notice was expressly served without prejudice to the Council’s contention that Saturn did not have a tenancy and, if it did, it was not protected by the 1954 Act.

Complicated possession proceedings ensued, but the proceedings were compromised by a settlement agreement under which the Council paid £150,000 to Saturn in exchange for vacant possession of the site. The settlement resulted from the Council’s assertion that it intended to demolish the ice rink.

Saturn vacated but the Council did not commence works, as the agreement with Morrisons had not yet become unconditional. Saturn sued for damages under section 37A, stating that it had only entered into the settlement agreement because the Council had represented that it intended to demolish the ice rink, and arguing that the lack of demolition meant that the Council had never genuinely intended to demolish the site.

The High Court found that the Council had only represented that it intended to demolish the site if the court found that Saturn had a protected tenancy. Its intention to demolish was conditional, but was nonetheless genuine, so no misrepresentation had been made and no damages were awarded. The High Court judge did not attempt to veil his disapproval of the tenant’s baseless grounds of appeal and unsubstantiated fraud allegations.

In the 2009 case of Inclusive Technology v Williamson, however, the landlord was found liable in misrepresentation to a tenant which had vacated in reliance on the landlord’s stated intention to redevelop, because the landlord had postponed its proposed refurbishment works due to a change in market conditions without informing the tenant.

Saturn v Havering also highlights that the landlord’s motives in carrying out the proposed works of demolition, construction or redevelopment are irrelevant – all that matters is that the landlord has a genuine intention and that there is a reasonable prospect of that intention being carried out. It does not matter if the development plans have been drawn up simply to eradicate a troublesome tenant.

Landlords should therefore be wary of making representations as to their intentions in the run up to lease expiry – either ensure that no further explanations are given in addition to the grounds of opposition set out in the opposing notice, or ensure that any change in intentions is notified to the tenant without delay.