Landlord penalised for its evidence despite a successful application under section 30(1)(g) of Landlord & Tenant Act 1954 – McDonald’s v Shirayama [2024] EWHC 1133 (Ch)

By Gillian Palmer on June 19, 2024

Background

This case involved a dispute between McDonald’s Restaurants Limited (“McDonald’s”), the former tenant of part of the old County Hall building in London (the “Premises”), and Shirayama Shokusan Company Limited (“Shirayama”), the landlord of the Premises. McDonald’s had a protected lease of the Premises (i.e. benefitting from security of tenure under the Landlord and Tenant Act 1954 (the “Act”)) for a period of 20 years from December 1997.

Shirayama opposed the renewal of the lease on the ground that it intended to occupy the Premises itself, and applied to the court under the Act for an order to terminate the lease. The Central London County Court granted the order and McDonald’s had vacated the Premises. Sometime later, an employee of McDonald’s discovered that Shirayama had not been carrying on a business in the Premises as it had said, and therefore brought proceedings against Shirayama, claiming that it had misled the court about its intention to occupy the Premises and that it was also in breach of an undertaking it had made to the court as to how it would use the Premises. McDonald’s sought compensation from Shirayama under section 37A of the Act.

The Relevant Legislation

Part II of the Act gives tenants the right to apply for a new lease when their existing lease expires, and that new lease will be granted unless the landlord can establish one or more of the grounds of opposition set out in Section 30(1) of the Act. One of these grounds, known as ground (g), is that the landlord intends to occupy the premises itself for the purposes of its own business. To rely on this ground, the landlord must prove that it has a firm and settled intention to occupy the premises and that it has a reasonable prospect of being able to do so. If the landlord succeeds in proving this ground, the court will order the termination of the lease, and the tenant will have to leave the premises.

However, the tenant may be entitled to compensation from the landlord, under Section 37A of the Act if the landlord secures the termination of the lease by misrepresenting its intention to occupy the premises. An award of compensation is at the discretion of the court, which can award such sum as it considers to be sufficient as compensation for damage or loss sustained by the tenant as the result of the order terminating its tenancy.

McDonald’s also bought a claim for the tort of deceit, but was not successful in this.

The Trial

The trial took place in the High Court of Justice, before Mr. Justice Edwin Johnson and focused on the issue of liability. The issue of quantum is to be determined at a later date. The court found that Shirayama was liable to pay compensation to McDonald’s under Section 37A of the Act because it determined that Shirayama had misrepresented its intention to occupy the Premises and had breached an undertaking given to the court.

In particular, Shirayama had told the court, and produced evidence to that effect, that it intended to occupy the whole of the Premises for the purposes of running a Japanese restaurant, however once it had succeeded in its application, this plan was not implemented. Instead, Shirayama showed no clear plan of what it would do with the Premises. Shirayama did open a restaurant on the ground floor of the Premises but subsequently closed it during the Covid restrictions, then opened a different restaurant and a coffee shop and bakery in the basement of the Premises.

However, the court dismissed McDonald’s claim for damages in the tort of deceit, on the basis that Shirayama had not acted deliberately or recklessly in making the misrepresentations or when it gave its undertaking to the court. The court accepted that Shirayama had acted negligently and carelessly, but not dishonestly or fraudulently. It also found that Shirayama had been influenced by external factors, such as the uncertainty caused by the Brexit referendum, the Covid-19 pandemic, and the changing market conditions, which had affected its plans and prospects for the Premises.

Conclusion

The judgment of the court in this case shows that landlords who oppose the renewal of business leases on the ground of an intention to occupy the premises themselves must be very careful and clear about their intention. If the landlord misrepresents its intention, it may be liable to pay significant compensation to the tenant, especially if the premises are in a high-value location and the tenant has a long-standing and profitable business there.

The landlord may also potentially be liable to pay damages to the tenant in the tort of deceit, if the landlord acts deliberately or recklessly in making a misrepresentation. The damages may be even higher than the statutory compensation, as they may include consequential losses.

As such, landlords who wish to rely on ground (g) should ensure that they have a genuine firm and settled intention to occupy the whole of the premises for the purposes of their own business and that they have a reasonable prospect of being able to do so. Further, they should also ensure that they take prompt and effective steps to actually implement their intention, and that they do not delay or deviate from that intention without good reason.

It is noticeable that Shirayama has not been pursued by the court for the breach of its undertaking. Breach of undertakings to the court may result in a litigant being fined or the person who has given the undertaking being imprisoned. We do not know why this is the case here, but it is something further for landlords to bear in mind as a potential consequence of its actions.

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