Porky pies off the menu

Snapshot summary: A landlord was held liable for misleading its business tenant, McDonald’s, about needing the property back for its own future use. McDonald’s vacated the property based on what it was told. That information was subsequently exposed as being untrue. The landlord was punished.

More detail

A business tenant with protection under the Landlord and Tenant Act 1954 is entitled to a new lease at the end of its contractual term.

The exception is where the landlord can satisfy one of the seven grounds of opposition that are set out in the legislation. 

If the landlord is able to satisfy one or more of those grounds, it can recover possession of the premises from the tenant. 

One of the grounds that a landlord can rely upon is the ‘own use’ ground, that is to say where the landlord wants the property back so that it can occupy the premises for the purposes of its own business.  This ground is often referred to as ‘Ground (g)’.

A landlord must be honest about its intention. If the landlord misleads the tenant or the Court and recovers possession by way of misrepresentation or by concealing material facts, the Court can penalise the landlord by ordering it to pay to the tenant “such sum as appears sufficient as compensation for damage or loss sustained by the tenant…”.

In the recent case of McDonald’s Restaurants Limited v Shirayama Shokusan Company Limited the landlord ended up with a proverbial black eye due to representations that turned out to be not entirely truthful.

The facts of the case were that McDonald’s occupied premises at the Riverside Building on the banks of the River Thames in London. At the end of its contractual lease term, it asked the landlord for a new lease. The landlord refused to grant a new lease and stated that it intended to occupy the property for purposes of a business that it was planning to carry out at the premises – ie relying upon Ground ‘g’. It required the tenant to vacate.

Court proceedings ensued.

The landlord served evidence in those Court proceedings purportedly demonstrating that it intended to run a Japanese restaurant from the premises. 

The Court was therefore satisfied that Ground (g) had been satisfied and it ordered the termination of the McDonald’s lease.  McDonald’s duly vacated the premises. 

It turned out that the landlord did not in fact open a Japanese restaurant. A coffee shop and a bakery appeared, but no Japanese restaurant.

McDonald’s decided to bring a claim against the landlord seeking damages and claiming that the termination of their lease had been based on misrepresentation.  As part of that claim by McDonald’s, emails were disclosed that revealed that the landlord had always been uncertain about its business plans and that there had been no “firm and settled intention” to open up a Japanese restaurant. It had been a little creative with the truth.

The Court accepted that there had been a misrepresentation and ordered the landlord to pay compensation to the tenant. 

The amount of compensation has yet to be determined but given that McDonald’s was by all accounts trading extremely successfully from these premises, the landlord is going to feel the sting. 

Despite the twists and the turns in this case, the lesson is fairly straightforward:  If a landlord is relying upon Ground (g), it needs to have a “firm and settled intention” to occupy the premises and that intention must be demonstrable at the date of the hearing.  Furthermore, it will be expected to follow through with that intention after the hearing in a timely manner.

Demonstrate your intention and then get on with it.  Cynical attempts to mislead a tenant or mislead the Court are likely to be exposed and to backfire in a major way. 

If you have any queries in relation to the issues raised in this blog, please contact Andrew Turner at aet@hughes-paddison.co.uk or on 01242 586 841