Finding Fault - When can a landlord refuse to renew a lease under the 1954 Act?

By Hayley Crombleholme, Solicitor, Real Estate Disputes

In the recent case of Kent v Guest [2021] EWHC 51 (Ch) the High Court has provided some helpful guidance in respect of the ‘fault grounds’ which a landlord can rely on to oppose a new tenancy under section 30(1)(a) to (c) of the Landlord and Tenant Act 1954 (“1954 Act”)

 Facts 

Mr Guest, horse trainer and former Grand National winner, was granted a one-year lease by Mr Kent. The lease was due to end in 2016 and was contracted out of the security of tenure provisions under the 1954 Act. In 2017, the parties agreed to enter into a new lease and, because Mr Kent failed to validly comply with the contracting out procedure under the 1954 Act, he inadvertently granted a new one year lease with the benefit of security of tenure under the 1954 Act.

On expiry of the 2017 lease in 2018, Mr Guest refused to vacate. Mr Kent served a hostile section 25 notice, opposing the grant of a new tenancy on two of the three ‘fault grounds’ set out in the 1954 Act. At trial, the County Court upheld the grounds of opposition cited by Mr Kent and accordingly refused Mr Guest’s request for a new lease. Mr Guest appealed to the High Court. 

Fault grounds under the Act

Section 30(1) of the 1954 Act provides a series of fault grounds whereby a tenant “ought not to be granted a new tenancy”. They are:

• ground (a)—breach of repairing obligations;
• ground (b)—persistent delaying in paying rent; and
• ground (c)—other substantial breaches of use or management of the property.

There are seven grounds of opposition in total under section 30(1), but the three grounds above are known as the “fault grounds” as they involve an element of default by the tenant.

In the current case, Mr Kent relied on grounds (a) and (c), on the basis Mr Guest had allowed the premises to fall into disrepair, along with breaching numerous other tenant covenants within the lease.

Are the grounds of opposition made out? The two-stage test

The High Court determined that the correct legal approach when looking at the fault grounds involves a two-stage test.

Stage one 

Firstly, the landlord must make out, as a matter of fact, the relevant grounds of opposition.

In relation to ground (a), breach of repair and maintenance obligations, the lease required Mr Guest to keep the premises clean, tidy and in good repair but in no better state of repair than it was in at the start of the lease. Following an inspection and a subsequent expert report, Mr Kent relied upon evidence of untidiness and disrepair of the premises which remained un-remedied.

In relation to ground (c), other breaches of the lease, the High Court considered Mr Guest’s obligations in respect of alterations, sharing occupation and compliance with laws and insurance.

Stage two 

For the second part of the test, the court must exercise their statutory discretion to decide whether the tenant “ought not to be” granted a new lease. The High Court held that exercising this discretion requires a value judgement in each case.

High Court Decision

Applying stage one of the test, the High Court upheld the County Court’s finding that both grounds of opposition were made out as a matter of fact, in that there were breaches of the tenant obligations within the lease and that, in both instances, the breaches were substantial.

At stage two, the court concluded that it would be unfair to compel Mr Kent to enter into a new lease with Mr Guest given his multiple breaches of the lease. The appeal was therefore dismissed.

Case Impact 

This case provides further guidance for landlords and tenants alike on the manner in which the fault grounds will be considered and applied by the court in circumstances where a landlord opposes the grant of a renewal lease.

The decision is likely to be welcomed by landlords. It shows that even if individual breaches under grounds (a), (b) and (c) are insufficient for the court to conclude that a tenant ought to be denied a new lease, the combined impact of multiple breaches under various grounds can nevertheless justify the refusal of a new lease. The court will be reluctant to impose a renewal lease on a landlord where its tenant has breached more than one of its obligations.