Landlord and Tenant Act 1954: Sainsbury’s case reignites calls for reform

As the 1954 Landlord & Tenant Act celebrates a milestone birthday, recent case law that demonstrates the strength of tenants’ security of tenure has renewed calls to modernise the aging legislation.

The case of Sainsbury's Supermarkets Ltd v Medley Assets Ltd [2024] (judgment 21.3.24) continues a theme of tenant-friendly legal interpretation of the act in looking at the definition of a ‘holding,’ ie the question of whether tenants can remain in occupation when redevelopment works are being carried out and lease renewal grounds.

The Sainsbury’s case

The case involved a Sainsbury’s Local store on Kentish Town Road, London, where Sainsbury’s was the tenant of the whole building, comprising basement, ground and upper floors. The basement and upper floors had been unused for some time, with the tenant operating its supermarket from the ground floor.

Sainsbury’s lease had ‘security of tenure’ under the 1954 Act, meaning that Sainsbury’s had the right to remain in occupation on the expiration of the lease term and to apply for a lease renewal.

The landlord served a ‘hostile’ notice to end the tenancy and oppose the grant of a new lease, citing ‘ground f’ – an intention to redevelop the premises where such works could not be achieved without obtaining possession of ‘the holding.’

The landlord’s works would mainly affect the basement and upper floors, but would also incorporate a small area on the ground floor that was used as storage space by Sainsbury’s.

The parties’ legal arguments invited the court to determine whether, for the purposes of ‘ground f,’ ‘the holding’ is the area of the demised premises that is actually occupied by a tenant or, as the landlord argued, the entire premises demised by the lease.

Definition of ‘the holding’

Finding in favour of Sainsbury’s, the court confirmed that for the purposes of ‘ground f,’ ‘the holding’ is the area actually occupied by the tenant ‘at the date of the order.’ In doing so, the court effectively confirmed that ‘actual occupation’ is flexible and the relevant area does not have to have been actually occupied for any significant length of time. In fact, Sainsbury’s vacated the storage area in question a week before the trial, in full knowledge of the landlord’s plans.

In other words, a tenant can adapt their “holding” in response to its Landlord’s development plans to assist in the Tenant’s lease renewal claim. Quite a shield to ground f’s sword!

Of course, there are practical limitations to this “defence” – there will be a limit to how much of its demise a tenant can practically give up in this manner, whilst ensuring that the remaining space is still business viable.

But once a tenant has successfully defeated the landlord’s claim, what happens next? Is the landlord able to go ahead and complete the development works and the tenant loses that space, taking a new lease of the area it actually occupied or is the tenant entitled to return to using the recently vacated areas and take a new lease of the entirety of the original demise? Surely the former – a happy medium in which genuine development works can be completed without affecting the tenant’s trade? Wrong!

Even though the court stated that references to “the holding” in ground f are to the areas actually occupied by the tenant, it also confirmed that references to “the holding” elsewhere in the 1954 Act, which entitled a renewing tenant to take a new lease of the whole of the premises demised under its current lease were only relevant “if and when the landlord’s opposition to a new tenancy has already failed” and the parties are negotiating the terms for the renewal lease.

Mental gymnastics, perhaps, but there was clear evidence of the court’s desire to uphold the tenants’ security of tenure.

Put simply, a tenant can vacate part of its demised premises with the sole intention of defeating a landlord’s ground f claim, only to reoccupy that area after the trial and claim a new lease over the whole area.

Evidencing redevelopment intentions

It should be noted that the court also considered the high bar of the genuine “firm and settled” intention that landlords must demonstrate when evidencing their redevelopment plans. In this case, the judge was unimpressed with the evidence provided by the landlord and concluded that the landlord had failed to evidence such an intention, despite the landlord’s willingness to provide an undertaking to do the works.

That perhaps assisted the court in coming to its tenant-friendly conclusion.

It also further demonstrates a landlord’s need to ensure that it has the necessary information to be able to show a genuine development intention and not simply development plans, which now includes considering whether the tenant could scupper such plans with ‘the Sainsbury’s Vacation’ - a term I have coined and am hoping may catch-on!.

Implications

While there is a theme in the court’s assessment of ground f, it remains that other cases will turn on their facts and so landlords and tenants should be wary of treating case law as hard and fast rules.

Landlords who intend to redevelop tenanted property or regain possession of their property at the end of a lease or tenants who have received a termination notice or lease renewal refusal should continue to take legal advice.

Equally, landlords looking to let a commercial property or tenants considering taking a lease of a new space, should continue to consider the ramifications of whether or not a lease is ‘contracted out,’ so as to either keep or waive a tenant’s security of tenure. This is often a key negotiation point in Heads of Terms and discussing respective plans can assist in avoiding potential litigation headaches later on.

LTA reform?

While the Sainsbury’s case supports the general theme of courts finding in the tenant’s favour, the fact it may set a surprising precedent, has already renewed calls for reform of the 1954 Act. Modernising the act would offer the opportunity to streamline the ‘contracting out’ procedure, reflecting parties’ intention rather than inviting technical pitfalls and making the process ‘quicker, clearer and simpler.’

It would also help clarify the grounds for opposing renewals by both incorporating accepted principles from case law and limiting the need for further litigation.

A consultation on this very area was announced in 2023, however, has been pushed back to “Autumn 2024” and in an election year, with the potential of a new government on the horizon, further delays are foreseeable. Indeed, those supporting modernisation may well be disappointed. It is unlikely that commercial property reforms will top policy priority lists.

More likely residential property will take centre stage – such as the Leasehold and Freehold Reform Bill which is currently crawling through the legislature, with a focus on simplifying the residential lease extension process and making it more affordable and therefore a more obvious ‘vote winner.’

As such, we may have to be a little more patient for 1954 Act reform and the 1954 Act could well celebrate its Diamond Jubilee yet.