How you define your holding can give you the upper hand in Ground F contested lease renewal matters, following the judgement passed in the recent case between Sainsbury’s Supermarkets Ltd v Medley Assets Ltd. 

This dispute, which went to the Central London County Court, saw the landlord, Medley Assets, contest its tenant’s (Sainsbury’s Supermarket) right to renew its lease on the basis that it wanted to renovate and convert the vacant upper floors of the building and the disused basement. Sainsbury’s occupied the ground floor retail unit from which it operated. It has also previously used a small area for stock storage, which it vacated before the trial started. 

The landlord had wanted to get value out of the upper floors and basement and had been trying to negotiate access with the tenant for a number of years. 

Christopher Sullivan, Director and Head of Dispute resolution, was a key expert witness in the case which should be noted by landlords who have occupied buildings. Sadly, occupiers, lawyers, asset managers and developers are all too familiar with the resulting conflict that the question of ‘Leave or Remain’ throws up. Taking the proper steps and appointing expert development management in the early stages is critical for those who want to be successful in clearing a project for redevelopment and the importance of this cannot be underestimated. 

The landlord’s case: 

Medley had planning approval for two options, either converting the upper floors into apartments, or to lower the basement floor, widen the staircase from the ground floor to the upper floors and convert them into offices.  

The proposed ground-floor staircase works would have intruded into a small area previously used by Sainsbury’s for stock storage, but no longer being occupied. 

Medley had stated it was prepared to grant a new lease, but only on the condition that it included the development space in the basement, which the tenant didn’t want to do. 

Medley instead triggered section 32(2) of the Landlord and Tenant Act 1954 which requires a tenant who is not occupying all of the original demise to take a new tenancy of that original demise to avoid being left with unlettable parts which the tenant does not want. It also argued that “the holding” referred to the original demise that the tenant had occupied or leased, which would have meant that the works to the basement and the vacated part of the ground floor fell within ground (f). On this basis it argued that it was within its rights to end the lease of its tenant on the grounds of redevelopment within section 30(1)(f). 

The tenant’s case: 

Sainsbury’s argument hinged on the definition of “the holding”, arguing that whilst it may have held a lease for a larger area of the building, it had the right to just renew the lease on “the holding” alone, which it considered to be the area it physically occupied and traded from. In this case, the ground floor retail space, not the areas that the landlord wanted to redevelop. 

It argued that the proposed works did not infringe on its ability to occupy and trade from “the holding” and therefore the landlord had no right to contest the lease renewal. 

Sainsbury’s team was also able to argue that the fact that the landlord had planning consent for two very different schemes meant that it had no genuine, settled intention to carry out the proposed works. 

The judgement and lessons: 

When making a judgement on this case the judge focused on three key issues: 

 1 – the definition of “the holding” for lease renewal 

2 – the intent of the landlord in triggering ground F 

3 – the practical aspect of whether or not a tenant can physically stay in place during disruptive works 

Having listened to the arguments from the expert witnesses on both sides, the judge ruled that when defining “the holding”, the tenant was within its rights to restrict this to those parts of the premises it physically occupied at the time of the trial. These perimeters of how a holding is defined could have ongoing consequences to how lease renewals can be drawn up in the future and whether or not a landlord can rely on section 32(2) to force a tenant to lease areas of a building it no longer wants to occupy. 

In this instance, the landlord left itself open to having its intent questioned by the judge at trial. As well as having two different planning applications, the judge ruled that because the landlord only engaged Section 32(2) after its initial opposition to a new tenancy had failed, this meant the proposed works to the ground floor were introduced with the sole intent of instigating ground F. 

The judge also ruled that even if it was felt that the holding had been defined as the original demise, and that the landlord’s intent to undertake the work was sufficient to invoke ground f; under section 31A, the tenant could have continued to trade from the ground floor whilst work was carried out. 

In finding in favour of Sainsbury’s in this case, the message to landlords was very clear…if you want to make use of ground f, you need to be prepared and have watertight arguments.  

Navigating redevelopment and site clearance: 

Christopher Sullivan acted as the expert witness on behalf of Sainsbury’s Supermarkets Ltd on this case and has extensive experience of providing expert witness statements in ground f cases, acting for both landlord and tenants. He also acted as expert witness for the ground-breaking Supreme Court case of Franses v Cavendish Hotels, which set precedent for ground f case law. 

Christopher and our team of project management and development management experts are on hand to help you successfully navigate office and retail redevelopment and to guide you throughout the process from the outset.