Landlords who want to obtain vacant possession of premises at the end of a tenancy benefitting from the security of tenure protections in the Landlord and Tenant Act 1954 (“the Act”) often use the redevelopment and own occupation grounds in sections 30(1)(f) and (g) of the Act to resist the grant of a new tenancy.

On 13 May 2024, however, Mr Justice Edwin Johnson handed down judgment in the case of McDonald’s Restaurants Limited v Shirayama Shokusan Company Limited [2024] EHHC 1133 (Ch) in a case that should make landlords think very carefully about the tactics they use and the documents that may ultimately need to be disclosed in any proceedings as well as what they do following the obtaining of an order.

The relevant facts of the case are as follows.

Facts of the case and issue to be determined

McDonalds was the former tenant of ground floor and basement premises within the Riverside Building at County Hall in London. McDonalds’ lease was protected by the Act. The lease contractually expired in 2017 and McDonalds sought a new tenancy of the subject premises pursuant to the Act. However, the landlord opposed the grant of a new lease in reliance on Section 30(1)(g) (“ground (g)”) of the Act, which provides that “…on the termination of the current tenancy, the landlord intends to occupy the holding for the purposes, or partly for the purposes of a business to be carried on by him therein, or as his residence”.

The landlord obtained an order at trial of a preliminary issue terminating the tenancy on the basis that the landlord had established its intention in respect of ground (g). The tenancy therefore terminated on 5th March 2019 and McDonalds vacated the premises.

McDonalds then subsequently issued proceedings, its case being that the landlord secured the termination of the lease by deliberate and/or reckless misrepresentation to the court of its intentions in relation to the premises. McDonalds argued that the landlord did not hold the intention which it had said that it had. McDonalds also complained that the landlord had breached the undertaking given to the court in the previous proceedings, promising to give effect to its stated intentions. McDonalds sought damages for misrepresentation pursuant to Section 37A of the Act and/or under common law pursuant to the tort of deceit.

Section 37A of the Act provides as follows: –

“Where the court-

  • makes an order for the termination of the current tenancy but does not make an order for the grant of a new tenancy, or
  • refuses an order for the grant of a new tenancy,

and it is subsequently made to appear to the court that the order was obtained, or the court was induced to refuse the grant, by misrepresentation or the concealment of material facts, the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damages or loss sustained by the tenant as the result of the order or refusal”.

The judgment deals only with the issue of liability and not quantum.

Points of Interest

In its original claim to determine the tenancy the landlord’s evidence expressly stated that “…We intend to carry on business as Zen Bento Box or similar which business will be carried on by our wholly owned subsidiary County Hall Cuisine Limited”. The witness evidence submitted by the landlord at the trial of the preliminary issue provided more details of the landlord’s plans and explained that the company to run the new restaurant (serving Japanese cuisine) from the premises would be Aji (Restaurants) Limited (“Aji”), a subsidiary of County Hall Cuisine Limited (“CHC”).

At the trial of the preliminary issue the landlord also provided an undertaking to the court including the following substantive provisions: –

“1. At the termination of the current tenancy the Landlord will occupy the Premises through its subsidiary Aji (Restaurants) Ltd, for the purpose of a business to be carried on there.

2. The Landlord will provide the necessary finance to Aji (Restaurants) Ltd to fit out the Premises and to trade therefrom.

3. The new business (Zen Bento) will commence trading as soon as reasonably practicable after obtaining vacant possession of the Premises….”

The order terminating the tenancy was made on 12 November 2018 and it was subsequently agreed between the parties that the tenancy terminated on 5 March 2019.

On 13 November 2018, an email was sent by the landlord’s representative to a number of other individuals with an interest in the landlord’s business reporting that they had been successful in obtaining an order for the termination of the tenancy and immediately suggesting alternatives to the Zen Bento restaurant that had been presented to the court.

In November 2019 McDonalds became aware that the premises still appeared to be empty with no discernible activity within the premises. This led to a letter of claim being sent accusing the landlord of misrepresenting its intentions to the court at the trial of the preliminary issue and stating a claim for compensation and/or damages pursuant to Section 37A of the Act and/or at common law.

Aji opened the ground floor only of the premises for business on 30 March 2020 as a restaurant serving Japanese food (including bento boxes) under the name “Aji Restaurant”. By this time, the Government had imposed its first set of lock down restrictions and for this reason the Aji Restaurant only served takeaway food.

The landlord therefore denied that there had been any misrepresentation and as part of its Defence pleaded that “…Whilst the restaurants opened at the demised premises are not exactly the same as that described in the evidence before the court, as found by the Judge, the Defendant did at the date of the hearing have a firm and settled intention to open a restaurant as described and take the steps described. The fact that, following the Judgment, the Defendant has changed its mind and opened a different restaurant later than originally envisaged does not falsify the evidence given at trial or the conclusions of the Judge having heard that evidence tested (at length) under oath.”

The judge summarised the evidence given on behalf of the landlord at trial and described that the period between November 2018 (when the preliminary issue was decided) and March 2019 (when the tenancy expired) saw the landlord “…consider and abandon a bewildering series of proposals for the Premises, ranging from a Spanish style high class fish restaurant to “a Heart of Gold Mother’s Home Cooking Dish Restaurant.”

The Court’s Decision

The Judge commented that a statement as to a person’s present intention, if honestly made, cannot found an action in misrepresentation if thereafter that person genuinely changes their mind. However, the Judge pointed out that there may be circumstances in which the representation as to a person’s intention take effect as a continuing representation and/or in which the person who made the statement is under a duty to communicate a subsequent change of mind.

The Judge noted that the landlord’s evidence and undertakings to the court made it clear that the landlord intended to open the Zen Bento restaurant at the whole of the premises. The intention put forward and representations made did not relate to “…some kind of restaurant… .” There was no material qualification expressed to the intention at the trial of the preliminary issue beyond the condition that the landlord needed to obtain vacant possession of the premises.

Given the number of ideas suggested by the landlord for the use of the premises in the aftermath of the judgment concerning the preliminary issue, the Judge felt it unlikely that the landlord had anything approaching a firm intention when its representatives gave evidence at trial of the preliminary issue. Indeed, it was held that the landlord also had alternative uses in mind for the premises when they gave evidence at the preliminary issue trial but which they had not included. The Judge therefore held that the landlord pursued its application to terminate the tenancy in order to take back the premises, so that the landlord could then decide what to do with it. The landlord did not pursue its application in order to open Zen Bento as that was not the landlord’s intention. Therefore, misrepresentations had been made. The Judge also held that the termination order was obtained by the misrepresentations with the effect that the landlord was held liable to pay compensation to McDonalds.

Action Points

Landlords need to be incredibly careful to ensure they do not misrepresent their intentions to the court and their tenants when resisting claims to new tenancies on “redevelopment” or “own occupation” grounds. The consequences of misrepresenting the position can be severe. If the landlord’s plans change before the tenant has decided how to proceed, then the landlord is under a duty to correct any representation it has made about its intentions to the tenant or risks a claim being made against it.