Two recent cases from the European Court of Human Rights and the United Kingdom Supreme Court place further distance between the security of tenure enjoyed by residential and business tenants in the private sector.
Handed down by the ECtHR on 29 November 2018, FJM v The United Kingdom, formerly know as McDonald (by her litigation friend Duncan J McDonald) v McDonald and others in the domestic courts, raised the issue of whether proportionality could be raised as a defence to a claim for possession made by a private landlord. The County Court, Court of Appeal and Supreme Court had decided that proportionality could not be raised as a defence where a private landlord sought possession.
On 5 December 2018, the Supreme Court handed down its judgment in S Franses Ltd v The Cavendish Hotel (London) Ltd [2018] UKSC 62. The case concerned the proper interpretation of the Landlord and Tenant Act 1954, s30(1)(f), which contains one of the grounds upon which a landlord can oppose the grant of a new tenancy to a business tenant under the 1954 Act. Specifically, s30(1)(f) allows a landlord to oppose a new tenancy on the grounds that, on the expiration of the current term, the landlord “intends to demolish or reconstruct the premises” and that “he could not reasonably do so without obtaining possession”. In both the County Court and High Court it was held that the landlord genuinely intended to carry out its proposed works, and that ground (f) was made out. Permission to appeal directly to the Supreme Court was granted by Jay J in the High Court.
Residential private sector: McDonald
Assured shorthold tenancies (ASTs), governed by the Housing Act 1988 as amended by the Housing Act 1996, dominate the residential private sector rental market, and have proven popular with landlords; they are often quick and easy to set up, allow full market rent to be charged, and confer upon tenants limited statutory protection, making it quicker and easier to evict them. Indeed, their popularity is so great that they have been credited with reinvigorating the private residential rented sector in England and Wales over the last 25 years (UKSC paragraph 19, ECtHR paragraph 15).
The limited statutory protection and often easy eviction process means that tenants enjoy very little security of tenure. Landlords are able to evict tenants upon the expiration of their fixed term tenancy, provided two months’ notice is given, and may evict a tenant at any stage during the term of the tenancy if one of the grounds for possession referred to in s7(6) and set out in schedule 2 of the 1988 Act are established. The only real security enjoyed by a tenant is the right to continue occupying the property subject to a statutory periodic tenancy after the expiration of their fixed term tenancy, provided no notice to quit has been served. However, that statutory periodic tenancy is itself liable to termination upon two months’ notice, pursuant to s21(4) of the 1988 Act.
It is s21(4) that is at the centre of McDonald. The County Court, Court of Appeal and Supreme Court ordered possession against the tenant pursuant to that statutory provision; she had been served with the required two months’ notice and had failed to vacate the property. In resisting the possession order the tenant argued that the court, as a ‘public authority’ within the meaning of the Human Rights Act 1998, s6(3)(a), should have regard to the proportionality of making such an order, pursuant to her rights under Article 8 of the European Convention on Human Rights. In particular, the tenant argued that her special circumstances (she suffered from psychiatric and behavioural problems, and had been unable to retain public sector tenancies in the past) and the low level of rent arrears caused an order for possession to be disproportionate.
The Supreme Court held that
“…although it may well be that Article 8 is engaged when a judge makes an order for possession of a tenants’ home at the suit of a private sector landlord, it is not open to the tenant to contend that Article 8 could justify a different order from that which is mandated by the contractual relationship between the parties, at least where, as here, there are legislative provisions which the democratically elected legislature has decided properly balance the competing interests of private sector landlords and residential tenants.” (paragraph 40)
“To hold otherwise would involve the Convention effectively being directly enforceable as between private citizens so as to alter their contractual rights and obligations, whereas the purpose of the Convention is, as we have mentioned, to protect citizens from having their rights infringed by the state.” (paragraph 41)
The ECtHR approved of the Supreme Court’s decision and held that, whilst there are many instances in which the courts are called upon to strike a balance between the Convention rights of two private individuals, a claim for possession by a private landlord was not one of those instances. Parties that enter into a contractual relationship in respect of which the legislature has prescribed how their Convention rights are to be respected should not be able to appeal to the domestic courts to override the balance struck by the legislation, as to do so would make the Convention directly enforceable between private citizens (paragraph 42). Furthermore, the ECtHR pointed to the Housing Act 1980, s89, which provides for the postponement of orders for possession where the immediate execution of such orders would cause exceptional hardship (paragraph 44).
As such, whilst the ECtHR had sympathy for the tenant in McDonald (paragraph 45), it was held that, in cases where a private sector landlord seeks possession, a residential tenant cannot raise the defence of proportionality.
Residential security of tenure
The decision in McDonald serves to highlight that the provision for ASTs in the Housing Act 1988 is an inherently landlord-friendly statutory scheme. Safe in the knowledge that the proportionality question has already been accounted for by the legislature, all a landlord needs to do is comply with the simple notice provisions of the Housing Act 1988 in order to evict their tenant.
It was a clear aim of the AST provisions to favour landlords when balancing the rights of landlords and tenants. However, it has to be wondered how many rights can be stripped away from tenants before the AST is so grossly skewed in favour of the landlord as to completely undermine the tenants already limited security of tenure.
It is no secret that the private rental sector is under extreme pressure to clean up its act. High rental fees, short tenancies and onerous terms in tenancy agreements cause hardship and discontent amongst renters. Whilst the decision in McDonald is probably correct as a matter of law, in light if the general direction and trend of the private rental sector, many will see it as an unwelcome addition to the mechanisms used to limit the rights and powers of tenants in the landlord-tenant relationship.
Business private sector: S Franses Ltd
The Landlord and Tenant Act 1954 governs business tenancies in the private sector. Business tenants enjoy a far greater security of tenure than their residential counterparts, although it is possible for a landlord and tenant to agree that the security of tenure provisions contained shall not apply to their tenancy.
The security of tenure provisions are contained in sections 24-28 of the Act. Section 24(1) provides that a business tenancy within the scope of the Act will not come to an end until the landlord serves notice under s25, or if the tenant makes a request for a new tenancy under s26 of the Act. If a landlord serves a s25 notice, the renewal process is set in motion. A tenant is entitled to the grant of a new tenancy if they request one, unless the landlord can raise one of the seven grounds of objection contained in s30(1).
S Franses Ltd concerned the interpretation of the ground of objection at s30(1)(f), which allows the landlord to object on the basis that
“on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding.”
In particular, the issue to be determined was whether a landlord needed to have a genuine intention to carry out the works relied upon to make out the ground of objection at s30(1)(f). In S Franses Ltd it was established that the landlord’s sole purpose for carrying out the works was to unlock the ground of objection at s30(1)(f) and secure the eviction of the tenant. The landlord argued that if it needed to carry out the proposed works in order to obtain possession, it would, but conceded that the intention to carry out the works was conditional upon the works being necessary to obtain possession, and that the works would not be undertaken if the tenant voluntarily vacated the premises.
The Supreme Court held that the landlord’s intention was not of the nature or quality required for s30(1)(f). Specifically, it was held that
“the landlord’s intention to demolish or reconstruct the premises must exist independently of the tenant’s statutory claim to a new tenancy, so that the tenant’s right of occupation under a new lease would serve to obstruct it. The landlord’s intention to carry out the works cannot therefore be conditional on whether the tenant chooses to assert his claim to a new tenancy and to persist in that claim. The acid test is whether the landlord would intend to do the same works if the tenant left voluntarily.” (paragraph 19)
Furthermore, whilst it was not itself relevant, a landlord’s motive or purpose may be evidence of his intention to carry out the proposed works, and the conditional character of that intention. Similarly, where proposed works lack any utility, as they did in the present case, inferences may be drawn as to the conditional character of the landlord’s intention.
Accordingly, it was held that the landlord could not rely on s30(1)(f) to obtain possession of the property, as there was no genuine intention to carry out the proposed works.
Business security of tenure
The decision in S Franses Ltd ensured that a business tenant’s security of tenure is not undermined. If conditional intention to undertake proposed works was sufficient to make out the ground of objection at s30(1)(f), a landlord would be able to remove tenants with ease by designing a scheme of works that would require possession of the property, and yet never have to carry out those works, or even intend to carry them out. In effect, the security of tenure provisions would become worthless, and tenants could always be removed at the end of their contractual term.
On the whole, the decision in S Franses Ltd reminds landlords and tenants where the balance of rights and powers lie in their relationship. The 1954 Act undoubtedly restricts a landlord’s ability to obtain vacant possession of its property and, accordingly, ground s30(1)(f) only protects a landlord’s interest in investing in and developing its property, rather than its interest in obtaining vacant possession. With a period of economic uncertainty on the horizon it is perhaps of elevated importance to ensure that businesses enjoy as much protection as possible (and maybe even incentive to keep their business in the UK); enhancing a tenants security of tenure and protecting their occupation of their business premises may go some way to achieving that aim.
Conclusion
The policy aims of the 1954 and 1988 Acts are different. The 1954 Act is designed to protect and promote business, which necessarily involves the protection of a businesses right to occupy its premises, whilst the 1988 is designed to encourage owners to make their property available to the rental market and provide much needed housing. The decisions in McDonald and S Franses Ltd highlight the differences in the policies behind the statutory schemes, and arguably strengthen the hands of those intended to benefit from each.
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