A lesson to commercial landlords - there is a price to pay for misrepresenting future intentions for a property in order to end a tenant's lease.
The law
The Landlord and Tenant Act 1954 (1954 Act) gives commercial tenants "security of tenure" in certain circumstances. Tenants in occupation of premises for the purpose of a business have a right to apply for a new tenancy and to remain in occupation after expiry of the contractual term of their lease whilst that application is decided. Landlords are able to oppose the grant of any such application on limited statutory grounds. If a landlord misrepresents its intentions, or conceals material facts, and this induces the court to make an order for termination, section 37A of the 1954 Act contains a statutory power to award the tenant compensation for its loss.
The facts
In McDonald’s Restaurants Ltd v Shirayama Shokusan Company [2024] EWHC 1133 (Ch) the Court had previously made an order terminating McDonald's tenancy and McDonald's then brought a claim that this order had been obtained by misrepresentation.
McDonald's had applied for a new lease of its premises at County Hall, Belvedere Road in London which the landlord (Shirayama Shokusan) had opposed under Section 30(1) (g) of the 1954 Act, on the basis that it intended to occupy the property for the purpose of its own business.
A director and the "controlling mind" of the landlord, Mr Okamoto, had given very specific evidence to the effect that the landlord intended the property to become a Japanese eatery called 'Zen Bento' and the judge had granted an order terminating the tenancy on this basis.
Misrepresentation
The question in this case was whether the landlord had obtained the order terminating the lease through misrepresentation.
The landlord's ground of opposition had been dealt with as a preliminary issue and at that trial the landlord had presented a particular picture of its proposals for Zen Bento which included a detailed business plan, identifying key members of staff, instructing architects and tendering for contractors and a food ordering system. An undertaking had also been given to the Court that the new business, Zen Bento, would commence trading from the property as soon as possible.
Plans for Zen Bento were, however, never realised and two different restaurants were eventually established instead.
After a review of extensive and eccentric email correspondence from Mr Okamoto immediately after the termination order in which he considered and abandoned a "bewildering set of proposals" for the property it was clear to the Court that he had never had any intention to open Zen Bento (in stark contrast to his previous detailed evidence to the Court about this) and that his intention had simply been to take back the space so that he could then decide what to do with it. Whilst it was clear that the landlord did plan to open some sort of restaurant, all of the judge's findings on the preliminary issue had been based on a specific intention to open Zen Bento which had not been qualified in any way. The Court did not find Mr Okamoto's arguments that Brexit and the Covid-19 pandemic had subsequently made Zen Bento "mission impossible" to be credible and there was no mention of this in any of the email correspondence.
Whilst the judge acknowledged that a landlord's intention is to be proved at the date of the trial and a landlord can reasonably change its mind thereafter, the key point in this case was whether that change of mind meant the original intention never existed.
The Court determined that the landlord had deliberately misrepresented the position to the Court in order to obtain the termination of the lease and was therefore liable to pay statutory compensation pursuant to section 37A of the 1954 Act with quantum reserved for a separate hearing.
Lessons for landlords and tenants
This case is a reminder that misrepresentations can and do come back and bite. It is also worth noting that in addition to the prospect of an award of damages in favour of an injured party, giving misleading evidence at court and breaching an undertaking to Court invokes the potential for separate court sanctions for contempt.
