Landlord opposed lease renewal on the basis of substantial breach of the Lease

The Court of Appeal has very recently considered circumstances where a Landlord was opposed to the renewal of the Lease protected by the Landlord and Tenant Act 1954 on the basis of disrepair and breaches of covenant.  The case in question is Youssefi v Mussellwhite [2014] EXCA Civ 885.

Ordinarily, the tenant of a business lease protected by the Landlord and Tenant Act 1954 has a statutory right to a new lease at the end of the contractual term.  A Landlord may only oppose an application for a renewal on very specific statutory grounds, which can include where the premises are in disrepair (“Ground (a)”) and/or if there are substantial breaches of the Lease (“Ground (c)”).

In the above mentioned case the Tenant had a lease of a mixed use premises which was described as a dwelling and shop premises and also included a yard area to the rear of the property.  The user clause of the lease required the Tenant to use property for a retail trade within Use Classes A1 or A3. 

During the term of the lease the property was not open for trade with the public and it was never entirely clear what the Tenant was using the premises for.  The Tenant made it difficult for the Landlord to have access to inspect the property, which it was entitled to do under the terms of the Lease.  In addition, the rear wall of the property was covered in a creeping plant which made it impossible to assess the condition it was in.  The Landlord refused to grant a new lease to the Tenant at the end of the term on the basis of Ground (a) and Ground (c).

The Court of First Instance found that:

1. failure to control the creeping plant on the rear wall was a breach of the tenant’s implied covenant to use the premises in a tenant-like manner and therefore the Landlord could rely on Ground (a);
2. the Tenant had been obstructive with regard to access to the property which undermined the relationship between landlord and tenant, which was covered by Ground (c); and
3. there had been a breach of covenant for failure to comply with the user clause, which was also covered by Ground (c).

The Court of Appeal upheld the initial judgement and declined to grant a new tenancy to the Tenant.  It held that:

1. failure to remove the creeper plant was not a tenant breach as it was the landlord’s responsibility to maintain the structure and there was no substantial breach in this regard;
2. failure to co-operate with the Landlord with regard to access was a substantial breach of covenant and the landlord could rightfully rely on Ground (c); and
3. the user clause created a positive obligation to use the property for a certain purpose, which the Tenant had failed to do and was therefore in breach of the Lease.  The Court felt that this was also a substantial breach which would be covered by Ground (c).

This case is interesting as is it shows that the Landlord did not need to prove that the breaches adversely affected the rental income at the property or the value of the landlord’s interest as this would be an inappropriate restraint on the discretion given to the court.  The Court of Appeal’s decision reinforces the position that landlords can resist lease renewal where there has been a substantial breach of the terms of the Lease.  It is also useful to see the circumstances that the court will take into account when considering a landlord’s objection to a renewal for breach of the lease terms.