Tenant's claim for goodwill, no defence in opposed lease renewal

A tenant of commercial property enjoys an automatic right to renew its lease at the end of the term (unless the landlord and tenant have contracted out of the right at the outset of the lease). A landlord wishing to prevent the tenant from exercising this right, must satisfy one of the various statutory grounds of opposition. A recent case considered one of these grounds – the landlord intends to occupy the property itself – under section 30(1)(g) of the Landlord and Tenant Act 1954 (Act).

Background

By the mid-twentieth century, the Sheffield property known as 'The Leadmill' (formerly a Victorian flour mill) was derelict. Its fortunes changed when it opened as a music venue in 1982. It quickly became famous for its live music performances by the likes of the Arctic Monkeys and Oasis. In 2003, The tenant seemed to secure its future when it signed a twenty-year lease, which granted it security of tenure rights under Part II of the Act.

The landlord served notice upon the tenant opposing renewal of the tenant's lease, on the basis that the landlord intended to occupy and trade from The Leadmill itself. The landlord issued court proceedings – setting the stage for the court to determine whether the landlord had met the statutory threshold to regain possession.

The claim for goodwill

The tenant argued that allowing the landlord to take possession and operate a music venue from the building would effectively expropriate the tenant's established goodwill. It was argued: "the Leadmill name" and the building were "indivisible". The tenant further argued that the deprivation of goodwill without adequate compensation, would constitute an unjust interference with its property rights thereby undermining human rights law. In principle goodwill can constitute possession under Article 1 of the First Protocol to the European Convention on Human Rights but, the tenant's claim must be proven and could not be for loss of future income.

Judgment

The protections of the Act do not guarantee a tenant's right to goodwill indefinitely. Rather, the legislation acknowledges that landlords have the right to reclaim their property for their own business use if their intent is genuine and substantiated. Whilst goodwill is a valuable consideration, the tenant here had not established a claim that would defeat the landlord's entitlement to reclaim possession and nor could the human rights arguments defeat the landlord's entitlement. A landlord can reclaim possession for specified and legitimate business purposes, even if doing so would affect the existing tenant's entitlement to goodwill.

If you are a commercial landlord or investor dealing with commercial property or seeking to redevelop occupied property, or you have any questions about how this decision may impact you or your business, please contact the Real Estate Disputes team or your usual Brodies contact.