The location of your premises is often crucial to your business's success, particularly in the hospitality and leisure sector.
Relocating can be expensive and disruptive for you and your customers.
This raises the question: Can a landlord take back possession of your premises at the end of your lease and force you to relocate elsewhere?
Our Hospitality and Leisure Team and Property Litigation Solicitors explore the recent case of McDonald's Restaurants v Shirayama Skokusan [2024].
The answer to this question depends on whether your lease is a 'protected' tenancy.
If it is not, then at the end of the contractual term, you have no right to remain in occupation of the premises unless you enter into a new lease with your landlord.
However, if your lease is a 'protected' tenancy, you have a right to remain in occupation and to request a new lease on the same terms as your existing lease, subject to reasonable modernisation.
If the landlord does not want to grant you a new lease, they can object to your request or serve a notice on you to terminate your occupation.
However, in doing so, they must rely on one of the statutory grounds set out in section 30(1) of the Landlord and Tenant Act 1954.
The most common grounds that landlords rely upon are either that they intend to redevelop the premises or propose to occupy the property for their use.
If the landlord can satisfy a statutory ground, then whilst compensation is payable to the tenant, a significant disruption can be caused should you relocate your business.
In the past, landlords have relied upon a statutory ground to obtain possession of the premises, and then their intention for the premises has changed.
The most recent case on this issue is McDonald's Restaurants v Shirayama Skokusan [2024], where the landlord sought to recover possession of the premises on the basis it intended to occupy the property for its own use.
In this case, the landlord owns the former County Hall, opposite the Houses of Parliament on the South Bank, London.
Until March 2019, McDonald's operated a restaurant on the ground floor and basement of the property pursuant to a 'protected' lease. The restaurant was one of McDonald's key sites.
At the end of the contractual term, the landlord served a notice on the tenant opposing the grant of a new lease on the basis it wished to occupy the property.
Court proceedings were issued, and the landlord called two witnesses to verify that it intended to run its own restaurant from the property serving Japanese food by November 2019.
The landlord proposed to trade under the name "Zen Bento," produced a plan demonstrating this, and the landlord's principal offered an undertaking to that effect.
The County Court Judge accepted that the landlord sought to occupy the property and granted an order terminating McDonald's tenancy in March 2019.
By November 2019, the landlord had yet to open the proposed restaurant.
The restaurant was opened on the ground floor in March 2020 and again in September 2020.
However, it closed due to the COVID restrictions that were put in place. In early 2021, the landlord opened a coffee shop and bakery in the basement, which was a different proposal from those on which the order was granted.
McDonald's sued the landlord because it had misrepresented its position and sought damages.
The landlord accepted that the restaurant was different to what had originally been proposed.
The landlord confirmed there had been delays in executing their plan to open a restaurant and that it had genuinely changed its mind about what to do, largely due to COVID and the restrictions imposed.
Legislation provides that if the court makes an order terminating the current tenancy and does not grant a new tenancy or refuses to grant a new tenancy and is induced to refuse the grant of a new tenancy by misrepresentation or the concealment of material facts, then the court may order the landlord to pay the tenant compensation for damage or loss as a result of the order.
The High Court found that whilst the landlord did want to run a restaurant at the property, the County Court Judge had been induced to refuse the grant of a new tenancy because the landlord had misrepresented the position and had not been honest about its true intentions at the time rather than changing its mind.
There will now be a trial to determine the compensation amount payable to McDonald's.
This case is a salutary lesson to landlords who seek to oppose the grant of a new lease where there is a 'protected' tenancy in place.
It is also a useful reminder for tenants who occupy under a 'protected' tenancy that if a landlord misrepresents the position about their intention for the property, which results in the tenancy being terminated, there is recourse.
Tenants should always ask the landlord to show their clear intentions for the property if they oppose a new tenancy.
If you need more advice regarding Protected and Unprotected Tenancies get in touch with our Hospitality and Leisure Team and Property Litigation Solicitors on:
Laura has 15 years of experience acting as a Property Litigation solicitor. Laura is the Head of our Hospitality and Leisure Sector. She has specialist expertise in commercial and residential landlord and tenant disputes, forfeiture, dilapidations, and rent arrears.
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