A recent case involving McDonald’s, has resulted in the landlord at its now-closed County Hall location being forced to pay the fast-food giant compensation. This follows the landlord’s misrepresentations at a previous County Court trial regarding the nature of the business which it sought to replace McDonald’s with. The case offers lessons for commercial landlords about the importance of ensuring that they do not misrepresent when it comes to refusing a lease renewal in order to occupy a premises for themselves.
Background
McDonald’s held a lease at County Hall in London which was reaching its expiration. At this point, McDonald’s sought to renew its lease under the Landlord and Tenant Act (LTA) 1954. However, this renewal was opposed by the landlord of the commercial space, Shirayama Shokusan Company Ltd.
The basis for this opposition to the renewal of the lease was on the grounds of section 30 (1) of the LTA, which enables landlords to refuse the renewal of a lease in cases where they ‘genuinely intend to occupy the premises for their own business purposes’.
In preventing the continued occupation of the building by McDonald’s, the landlord claimed their intention to open a Zen Bento restaurant. This intention was supported by a detailed business plan, architectural plans, projected opening date and court undertaking by the landlord. The County Court refused McDonald’s application for a new lease based on the argument made by the landlord.
However, following the hearing it was discovered by McDonald’s that the Zen Bento had not been opened by the purported opening date, and there had also been very little work done to advance the opening of said restaurant. Instead of proceeding, the landlord explored various alternative uses for the premises, such as the potential opening of a Spanish fish restaurant.
This resulted in McDonald’s filing for compensation and arguing that the landlord had misrepresented its intentions regarding its claim to be opening a Zen Bento restaurant. The legal proceedings were initiated under Section 37A of the LTA 1954, which provides for tenant compensation in situations where a court has been misled into refusing a new lease based on landlord misrepresentation or concealment of material facts.
What did the court decide?
The court made the decision that the landlord had deliberately misrepresented its intention to operate the Zen Bento restaurant, which resulted in the County Court denying McDonald’s a new lease. When scrutinising the documents and the actions of the landlord following the County Court’s initial hearing, a stark contrast was found between the representations by the landlord and their subsequent behaviour. The misrepresentation by the landlord was deemed by the court to have directly influenced the County Court’s refusal to grant McDonald’s a new lease.
The court also decided that McDonald’s was entitled to claim compensation. This was not determined at the time, with this to be decided in a subsequent trial. This trial will be focused on the quantification of damages which McDonald’s has suffered as a result of the misrepresentation.
Our thoughts
This is not the first case where the landlord had been caught out by the Act. The Court of Appeal considered a case with similar facts in Inclusive Technology –v- Williamson over 14 years ago.
The landlord in this case initially served a statutory notice terminating the business’ tenancy in June 2006, indicating plans for works at the end of the tenancy. However, the landlord later changed its mind without informing the tenant, who vacated the property based on the initial plans. The tenant brought a claim for compensation under section 37A and was awarded compensation by the Court of Appeal. The court found that the landlord’s failure to communicate the change in plans constituted a misrepresentation, entitling the tenant to compensation for the increased cost of finding alternative accommodation.
The court’s position on this issue has been consistent. Both cases highlight the importance of fair dealing between landlord and tenant. In these circumstances, when the representation had been a continuing one, had at one point became false. It is the landlord’s duty to correct it when it becomes false to his knowledge.
We have previously successfully acted for both landlord and tenant on cases involving S25 of the LTA 1954. And the judgement in the current case finding for McDonald’s is in line with the principle of fair dealing and the provisions of section 37A of the LTA 1954. It is the landlord’s duty to avoid misrepresentation and concealment in dealing under such circumstances. We remind both the landlord and the tenant to act by the principle and to exercise with caution when terminating the lease to avoid pitfalls.
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