Refusing a new business tenancy under the ‘fault grounds’ in the LTA 1954

The High Court has considered the correct approach to the ‘fault grounds’ on which a landlord can oppose a new tenancy under section 30(1)(a) to (c) of the Landlord and Tenant Act 1954 (the “Act”). The facts of this case provide a helpful illustration of how the fault grounds play out in practice (Kent v Guest [2021] EWHC 51 (Ch)).

Background

Mr Kent owned the Ingmanthorpe Racing Stables which stood upon approximately 40 acres of land. Mr Guest was employed as a racehorse trainer at the stables dating back to before Mr Kent’s ownership. The land had planning permission to build a detached house (the “Property”) and the parties agreed that Mr Guest could move into the Property once it was complete.

Mr Guest was granted a one-year lease of the Property until the end of 2016, which was contracted out of the Act. Mr Guest held over following contractual expiry and in 2017, the parties agreed to enter into a renewal lease on the same terms as the initial lease. However, Mr Kent failed to comply with the notice provisions of the Act and inadvertently granted a protected lease to Mr Guest. On expiry of the lease in April 2018, Mr Kent sought to end the tenancy, but Mr Guest refused to vacate. Mr Kent served a section 25 notice on Mr Guest, relying on the ‘fault grounds’ under sections 30(1)(a) and (c) of the Act to oppose the grant of a new tenancy.

It follows that proceedings were issued, and the County Court Recorder found in Mr Kent’s favour and dismissed Mr Guest’s counterclaim for a new lease. Mr Guest appealed to the High Court.

Fault grounds under the Act

Section 30(1) of the Act provides that a tenant “ought not to be granted a new tenancy” on any of the following fault grounds:

1. Failure to comply with the repair and maintenance obligations in the existing lease.
2. Persistent delay in paying rent.
3. Other substantial breaches of the obligations under the existing lease or for any other reason connected with the tenant’s use or management of the holding.

Decision

1. What is the correct legal approach to the fault grounds?

This is a two-stage test: First, the landlord must make out the relevant ground of opposition and second, the court must consider whether the tenant “ought not to be” granted a new lease involving an exercise of statutory discretion.

Mr Guest’s solicitors argued that the Recorder should have approached the second stage by considering the “ought not to be granted” question separately for each of grounds without one influencing the other. However, the judge had “very real doubts” that this submission was correct.

2. Were the breaches sufficient to engage the fault grounds?

Section 30(1)(a): repair and maintenance

The lease required Mr Guest to keep the Property clean and tidy and in good repair but in no better state of repair than the Property was in at the start of the lease.

Following an inspection in November 2017, Mr Kent had taken 53 photographs showing the untidiness and disrepair of the Property. He also relied on an expert report which confirmed the state of the Property and that this remained unremedied since the inspection. Mr Guest denied the breaches and relied on his own expert report which noted that there was no disrepair. However, the judge held that the report went largely to valuation and the note regarding disrepair was non-specific and only made in passing.

The Recorder did not describe the breaches relevant to ground (a) as “substantial”, however the judge concluded it was quite clear that he did regard the breaches as substantial.

Section 30(1)(c): other breaches of the lease

Alterations

During the term of the lease, there had been numerous alterations to the Property, including five make-shift temporary stables, a Portacabin, a canteen conversion, the installation of internal lighting and a substantial conservatory-style extension. In breach of the lease, Mr Guest could not produce any written evidence that Mr Kent’s consent had been sought for the works nor that the works existed prior to the original lease. On this basis, the judge said he could not see how the Recorder could have reached any other conclusion but that the alterations were still a breach of covenant during the lease.

Sharing occupation

The lease prevented use of the Property for any purpose other than as a racing stables and a paddock, and also prohibited sharing possession or occupation. Mrs Guest had been running an artificial turf business from the stables and Mr Guest had also indicated at trial that shared occupation with a different business was in prospect.

Compliance with laws and insurance

Despite warnings from the local authority, Mr Guest continued to burn trade and domestic waste at the Property. Perhaps the most serious breach in the court’s eyes was Mr Guest’s failure to insure the Property for most of the term of the lease. Although the Property was insured at the time of trial, the lack of insurance was quite clearly a serious breach, as it exposed Mr Kent to the risk of very substantial loss.

3. Ought a new lease be granted?

This point turned on the judge’s discretion under ground (a) and the High Court judge agreed with the Recorder: Mr Guest ought not to be granted a new tenancy because he already spent significant periods of time away from the stables and did not have a plan for his future at the Property. It was therefore likely that the Property would deteriorate at a greater rate than in the past and the existing breaches were extensive. On ground (c), the judge held that it would have been unfair to compel Mr Kent to enter into a new lease with Mr Guest given his multiple breaches of the lease.

Comment

This decision is encouraging for landlords seeking to oppose a renewal lease on the fault grounds, although admittedly this was a case where there were numerous substantial breaches. We can see why adopting a compartmentalised approach could have unjust consequences: individual breaches under each of grounds (a), (b) and (c) may not mean that the tenant should be denied a new lease, but when taken as a whole, the total impact of the breaches might make it unfair to require the landlord to re-enter into a renewal lease with the tenant.

The court has made clear that it takes a broad approach to exercising its discretion and will consider everything in the round. Though the “ought not to be granted” question was considered separately under each ground, the judge noted that any breaches that fall under grounds (a) and (c) can be considered together in the exercise of an overall discretion under section 30(1). This is a welcome reinstatement of established authority, which rightly focuses on the substance rather than the form of the Recorder’s judgment.

Co-authored by Janice Pang.