Terminating a Commercial Lease for Redevelopment
As a landlord, you are entitled to terminate a commercial lease on the grounds of redevelopment. However, there are certain criteria you must satisfy. Otherwise, the tenant will have the right to renew.
Terminating a commercial lease as a landlord
When a commercial lease expires, the tenant has the right to request a renewal. A landlord can only refuse this request on specific grounds. There are three fault-based reasons, which are:
- The tenant is always late paying rent
- The tenant has not complied with their repairing obligations
- There has been a substantial breach in the tenant’s other obligations
There are also no-fault reasons, the most popular of which is that the landlord needs to repossess the property for redevelopment. This is known as ‘ground f’.
Relying on ground f
If you want to rely on ground f, it means that you intend to demolish or reconstruct the premises, or carry out substantial works of construction. If a tenant challenges the termination of the lease, the matter may end up in court. To win your case and regain possession of the property, the burden is on you to prove that:
- You intend to carry out the proposed works
- There is a reasonable prospect of this work being carried out
- You cannot complete this work unless the tenant vacates the premises
If you fail to meet these qualifying criteria, the courts may find in favour of your tenant – meaning you must accept their request to renew the lease.
What does ‘intent’ mean?
The idea that you ‘intend’ to carry out the proposed works is something of a grey area. It does not mean that the builders have to move in straightaway. However, it does need to be more than a passing thought.
In 2018, a Supreme Court judge provided further guidance on the matter. Ruling in the case of S Franses Ltd v The Cavendish Hotel, the judge said that a landlord must intend to carry out the work, regardless of whether or not the tenant leaves voluntarily. In other words, would you still complete the work, if the tenant had given notice of their own accord?
With regard to there being a reasonable prospect of the work being carried out, the court will consider factors such as: do you have the funds to complete the work? Has planning permission been granted? And if planning permission has been denied, is there a reasonable prospect of permission being granted on appeal?
Vacant premises are required
Finally, the work must be substantial enough so that you could not reasonably complete it, if the tenant were to remain in situ.
Proving your case
Proving your case requires a tactical approach. For example, you might demonstrate that you intend to redevelop the premises by producing minutes of meetings, quotes from contractors or a timetable for the proposed works. You might also show there is a reasonable prospect of the redevelopment taking place by producing evidence of your funds or planning permission.
We can advise you further, helping you prove that you need to terminate a commercial lease on the basis of redevelopment. We recommend getting early legal advice, or the courts could find in favour of your tenant. This would lock you into another commercial property contract, from which it may be difficult to extricate yourself.
We can also explain any unforeseen consequences of terminating the lease on the grounds of redevelopment. For instance, it is likely that your tenant will be entitled to statutory compensation.
Commercial property solicitors Sunderland
Are you looking for legal advice regarding your commercial lease? If so, please call our Sunderland solicitors on 0191 567 7244 and we’ll be happy to help you.
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