Can a Tenant Claim When a Landlord’s Intention to Occupy Isn’t Genuine? Lessons from McDonald’s v Shirayama

When a business lease comes to an end, many tenants have statutory protection under the Landlord and Tenant Act 1954. While landlords can oppose the grant of a new lease in certain circumstances, they must be able to demonstrate a genuine and settled intention to rely upon the grounds they put before the court.

The High Court’s decision in McDonald’s Restaurants Ltd v Shirayama Shokusan Company Ltd [2024] EWHC 1133 (Ch) highlights the potential consequences where a landlord secures termination of a protected tenancy based on an intention to occupy commercial premises which later proves not to have been genuinely settled.

Opposing a Commercial Lease Renewal

Many commercial tenants benefit from security of tenure under the Landlord and Tenant Act 1954, meaning they may have the right to apply for a new lease when their existing tenancy expires.

A landlord who wishes to oppose renewal must rely on one or more statutory grounds. One of those grounds allows a landlord to oppose renewal where it intends to occupy the premises itself for the purposes of its own business.

These disputes often centre on whether the landlord’s intention is genuine, realistic and sufficiently settled at the time of the hearing.

Background to the Case

McDonald’s occupied restaurant premises at County Hall in London under a tenancy protected by the Landlord and Tenant Act 1954. When McDonald’s sought a new tenancy, the landlord opposed renewal, relying on its intention to operate its own restaurant business from the premises.

The landlord’s evidence was that it intended to open and operate a Japanese restaurant known as Zen Bento following termination of McDonald’s lease.

At trial, the Landlord gave an undertaking to the Court that it would begin trading as Zen Bento within a reasonable time following termination of the Tenant’s lease. The Court ordered that the lease be terminated on this basis.

However, the Landlord did not open a Zen Bento. Instead, it opened an entirely different restaurant on the premises.

The Tenant claimed deceit by the Landlord, with the termination order obtained by misrepresentation, and sought damages.

Judgment

The High Court had sight of emails sent after its original judgment that evidenced the Landlord had not, in fact, decided which business it intended to operate from the premises. This was contrary to the Landlord’s representations and undertakings to the Court.

Mr Justice Edwin Johnson found for the Tenant under Section 37A of the Landlord and Tenant Act 1954, and ordered the Landlord to pay compensation.  The deceit element of the claim was not upheld on the basis that the Landlord misled the Court, rather than the Tenant.

“In these circumstances it seems to me that the claim in deceit can only succeed if the required elements of deceit… are broad enough to accommodate a situation where;

(1)      The defendant makes a false representation to the court.

(2)      The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false.

(3)      The defendant intends that the court should act in reliance on it.

(4)      The court does act in reliance on the representation and in consequence the claimant suffers loss.”

The level of compensation is to be decided at a later date.

What Is Section 37A of the Landlord and Tenant Act 1954?

Section 37A provides a mechanism allowing a former tenant to seek compensation where an order terminating a protected tenancy has been obtained through misrepresentation or concealment of material facts.

Although claims under section 37A are relatively uncommon, the McDonald’s decision confirms that the provision can provide an important remedy where a landlord’s evidence regarding future occupation is later shown to be inaccurate.

Practical Considerations for Landlords

Landlords considering opposition to a protected lease renewal should ensure:

• Their intended use of the premises is genuinely settled.
• Business plans accurately reflect their intentions.
• Documents and communications are consistent with the position advanced before the court.
• Any undertakings given to the court can be fulfilled.
• Evidence is carefully reviewed before proceedings commence.

Failure to do so may create significant legal and financial risks.

Practical Considerations for Tenants

Tenants faced with opposition based on a landlord’s intention to occupy should carefully scrutinise the evidence supporting that intention.

Questions may arise regarding:

• The maturity of the landlord’s plans.
• Funding and viability.
• Internal decision-making.
• Consistency of supporting documentation.
• Whether the landlord’s intention is genuinely settled.

Where concerns exist, obtaining specialist legal advice at an early stage may be critical.

How Napthens Can Help

Our commercial property dispute solicitors advise landlords and tenants on all aspects of business tenancy renewals and disputes arising under the Landlord and Tenant Act 1954.

We regularly assist clients with:

• Opposed lease renewals
• Landlord intention to occupy claims
• Commercial tenancy disputes
• Section 25 notices
• Section 26 requests
• Compensation claims
• Commercial property litigation

Whether you are seeking to renew a lease, oppose renewal or challenge the evidence relied upon by another party, our team can provide practical and commercially focused advice.

Explore our property litigation services in more detail or get in touch today to speak with an expert.

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