Tenant's intention not important in compensation claims

In certain cases, a business tenant whose tenancy is terminated may be entitled to recover compensation from his landlord. This is generally regarded as compensation for disturbance, loss of goodwill or for the expense to which the tenant will be put in moving his business.

One of the circumstances in which a tenant has a right to compensation is where the tenant serves a request for a new tenancy and the landlord serves a counter notice stating that he will oppose the grant of a new tenancy on the ground that he intends to demolish or reconstruct the premises.

Will a tenant's right to compensation be affected if he has no genuine intention to remain in the premises when he serves a request for a new tenancy on the landlord?

This was the question posed in the recent case of Sun Life Assurance plc -v- Thales Tracs Limited [2001] PLSCS 115. Thales occupied premises under two leases expiring in December 1998. Sun Life had told Thales in 1996 that it would require vacant possession at the end of the term. Because of this, Thales bought adjoining premises with a deferred completion date of April 1998.

In January 1998, Thales served a section 26 request under the Landlord and tenant Act 1954 asking for a new tenancy. The landlord served the appropriate counternotices opposing a renewal on the ground that it intended to redevelop the premises. However, by April the landlord offered to renew the leases and in June it withdrew its opposition to the request for the new tenancies.

Thales stated that their plans were too far advanced and did not apply to the court for a renewal.

The landlord mounted a claim for dilapidations and Thales counterclaimed for compensation. Sun Life objected, claiming that Thales' request was not valid as they did not have a genuine intention to take up a new tenancy at the time they served the request under section 26. At first instance, the judge held that Thales' claim was invalid but this was reversed in the Court of Appeal.

The Court held that evidence of a tenant's state of mind when it served the request was inadmissible because the 1954 Act did not require the tenant to prove his intention.

When considering the word "request" in section 26, this did not carry with it a requirement that the tenant's motives should be examined. There was no mention of the tenant's intentions or motives in section 26. In other instances, where the Act required a party's intention to be genuine, this was expressly required.

For landlords, this decision will mean that they face paying compensation even though the tenant may never have had the slightest intention of remaining in the premises following expiry of the lease. For tenants it means that they will continue to benefit from additional help when moving premises where the landlord has indicated that he intends to redevelop. There will be instances when a tenant may have difficulty in proving his desire to take up a new lease despite a genuine desire to remain put. This case makes it clear that no such proof is required.

For further information, please contact Caroline Potter at caroline.potter@cms-cmck.com or on +44 (0)20 7367 2721.