Landlord and tenant: Youssefi v Mussellwhite

Where a tenancy that is protected under the provisions of part II of the Landlord and Tenant Act comes to an end, the tenant will be entitled to require his landlord to grant him a new tenancy of the same premises, unless the landlord can rely upon one or more of the seven grounds for objection to a new tenancy contained within section 30(1) of that Act.

Sections 30(1)(a), 30(1)(b) and 30(1)(c) are known as the ‘fault’ grounds, in that they apply where the tenant has: failed to abide by his repairing obligation (30(1)(a)); failed to pay his rent on time (30(1)(b)); or, has broken other terms of his tenancy or, where ‘for any other reason connected with [his] use or management of the holding’, the landlord does not wish the tenancy to continue.

Common to all three of the above grounds for possession are two important factors: first, the tenant receives no compensation if his tenancy is not renewed and, second, the grounds provide a two-stage test, i.e. facts must be found which bear out the landlord’s reliance on the ground and then the court must go on to ask itself whether, in light of those facts, the tenant ‘ought not to be granted a new tenancy’.

In the recent decision of Youssefi v Mussellwhite [2014] EWCA Civ 885, the Court of Appeal addressed its attention to the second stage: the ‘ought not to be’ test.

Wilful refusal

The case revolved around a 15-year tenancy of a ground-floor shop with a basement, two upper floors, and a rear yard in Winchester city centre. The tenancy expired by effluxion of time on 31 March 2009. The landlady (M) did not wish to grant the tenant (Y) a further term and raised several objections in support of her position.

These were: (i) failure to comply with the tenant’s repairing covenant (s 30(1)(a)); persistent late payment of rent (s 30(1)(b)); failure to permit access for inspection by M or her agents (s 30(1)(c)); and, breach of a positive covenant in the lease to keep the premises open as a shop or café to visiting members of the public (also s 30(1)(c)).

Y disputed all of the allegations against her. At trial, the recorder held that: there was sufficient evidence of breach of repairing obligations to justify refusal of a new tenancy under s 30(1)(a); that, although there was evidence of late payment of rent, it was not such as would justify a refusal under s 30(1)(b); and, that there was wilful refusal by the tenant to afford access or to comply with
the covenant to open the premises as a shop. The recorder determined that each of those two factors was sufficient on its own to justify a refusal of a new tenancy under section 30(1)(c).

Y obtained permission to appeal, taking issue with all of the learned recorder’s findings against her. In relation to the covenant to keep the premises open as a shop, the learned recorder’s finding of fact that the premises had been closed to passing trade for the entirety of the term was not directly challenged.

However, it was contended that the correct application of the ‘ought not to’ test required the recorder to find that the tenant’s use of the premises had caused him financial detriment and that, as the rent was paid (albeit on occasions late), there was no detriment to the landlady if the premises were shut, particularly as she owned no other premises in the parade of shops in which the subject premises were situated.

The Court of Appeal allowed Y’s appeal under
s 30(1)(a) on the grounds that the learned recorder’s findings of fact in relation to the disrepair which he had found proven were not sufficiently substantial to justify refusal of a new tenancy.

However, it is the court’s consideration of the ‘ought not to be’ test with particular reference to
s 30(1)(c) which is of greater interest.

Performance obligations

Y relied upon the Court of Appeal decision in Beard v Williams [1986] 1 EGLR 148 in which it had been held that the landlord must show that the ‘landlord’s interest was likely to be prejudiced’ by the grant of the new tenancy in order to justify refusal of a new term. It was submitted that, as M could not show financial detriment were a new tenancy granted to Y, then there was no ‘prejudice’.

M contended that the decision in Beard v Williams was arrived at per incuriam, because both counsel in that case had agreed on the nature of the test to be applied. Rather, the correct test was set out in Lyons v Central Commercial Properties (London) Ltd [1958] 1 WLR 869 where it was held that the court, after considering all material facts, should ask itself whether it would be fair to the landlord to require him to continue with a tenant who had shown himself to be unsatisfactory in the performance of his obligations.

Having reviewed the authorities, Gloster LJ, with whom Moore Bick and Vos LLJ agreed, concluded that the various expositions of the test could be reconciled. Whether the test is posited as ‘whether the proper interests of the landlord are prejudiced’ or as ‘whether the tenant should be foisted on the landlord for another term’, the discretion is not to be circumscribed in any other way, and in particular it is not necessary to show that the breach relied upon by the landlord has adversely affected his financial interests.

In the present case, Gloster LJ found it easy to imagine financial losses, although unquantified, were caused by repeated missed inspection appointments. She was also prepared to assume that, had M wished to sell her interest, a purchaser would pay more for a shop that was thriving rather than one which was closed.

But it was not necessary for the landlord to prove, still less to quantify that loss, for the ground of objection to be made out.

As a result, the learned recorder had been correct to focus on the wilful nature of the tenant’s failure to abide by the covenants in the lease as to access and as to user. The breaches plainly were substantial. It was not necessary to show that the breach had caused the landlady any financial loss.

The appeal against the recorder’s findings in relation to s 30(1)(c) was dismissed and the tenant accordingly was refused a new tenancy.

Practitioners will find this authority useful in advising landlord clients who have difficult tenants and who do not wish to renew their tenancies. Provided that the breach of covenant is substantial, the landlord will be justified in objecting to the grant of a new tenancy, even if he cannot show any direct financial loss arising from the breaches. The ‘nuisance value’ of the breaches will often suffice. Tenants should be advised that the courts will not necessarily take an indulgent stance towards breaches of covenant which do not adversely affect the landlord’s financial interests.

The decision is also considered to be a just one, in that persistent breaches often cause landlords financial losses which are difficult to quantify. These include, for example, time wasted by employees and agents in attending agreed appointments to inspect properties where no access is given, and the nebulous but nonetheless real diminution in the value of a landlord’s potential reversion caused by a tenant who persists, inexplicably (as in Youssefi v Mussellwhite), to keep commercial premises closed contrary to his contractual obligations. SJ

James Browne practises from Lamb Chambers. He appeared ?for the successful respondent ?in Youssefi v Mussellwhite ?