Can commercial landlords defeat tenants’ renewal rights when planning a redevelopment?

In the current rental market, it is unsurprising that commercial landlords may decide that repurposing their offices leads to better returns than reduced rentals. Office tenants coming to the end of their medium- or long-term leases may particularly be relishing the prospect of a lower rent reflecting market conditions when their lease falls for renewal under the Landlord and Tenant Act 1954 (the Act). Their landlords may have other ideas.

The recent County Court decision in Spirit Pub Company (Managed) Limited v Pridewell Properties (London) Limited [14 March 2025] illustrates the challenge for landlords opposing renewal under section 30(1)(f) of the Act on the ground that the landlord intends to redevelop the tenant’s premises (or the building of which those premises form part).

To satisfy the grounds under section 30(1)(f) of the Act, a landlord has to overcome several evidential hurdles, principally that it has a firm and settled intention to undertake the redevelopment. This test has been interpreted as having two elements, both of which must be satisfied by the landlord. These are:

1. the landlord’s subjective intention – has the landlord made up its mind to redevelop, so long as any necessary obstacles can be overcome?
2. an objective test, namely is there a realistic prospect that those obstacles can in fact be overcome?

The case law on the subject reveals a variety of approaches taken by commercial tenants to defeat their landlords by exploiting these tests. These commonly concern the questions of planning consent and development finance. In such cases, the tenant strives to prove that there is no realistic prospect that planning consent for the intended development will be granted or that third-party funding is not assured, i.e. that the objective test has not been met.

In the Spirit Pub Company case, the landlord intended to create six flats on the upper floors of an existing pub building, eventually retaining the pub at ground-floor level. However, to enable the redevelopment, the landlord required possession of the whole building. The tenant claimed renewal of its lease. The landlord’s case failed for one reason only. It failed to satisfy the judge that it had a realistic prospect of obtaining funding for the redevelopment even though the landlord provided evidence of available finance including an indicative bank term sheet. The problem for the landlord was that as a condition of the finance, the bank would require personal guarantees from the landlord company’s directors, yet the landlord offered no evidence at trial as to the directors’ personal assets that could support any such guarantees. The judge drew appropriate inferences from this and concluded therefore that “the Defendant has not shown it has a real prospect of obtaining funding for the Development”.

This case highlights the critical importance for landlords to present clear, well-substantiated plans when opposing lease renewals on redevelopment grounds under the Act. Courts require concrete evidence of both the intention and the realistic prospect of executing redevelopment plans to justify opposition to lease renewals.

If you have questions or concerns about your rights as a commercial landlord or tenant, please contact Garry Turkie.