Davy's of London (Wine Merchants) Ltd v City of London Corporation & Anor

When determining the terms of a protected business tenancy, the court must balance the landlord’s redevelopment objectives against the tenant’s need for reasonable security of tenure. A break clause should prevent redevelopment from being frustrated, but need not permit termination whenever the landlord asks. The court may tailor the clause to the redevelopment scheme actually advanced on the evidence. Where fresh evidence of post-trial events has properly been admitted on appeal, the appellate court must take it into account. In a case concerning future tenancy terms, the relevant circumstances include material developments occurring during the continuing tenancy. The appellate court should interfere with the first-instance discretionary decision only where it was wrong in the statutory sense or exceeded the permissible range of reasonable decisions.

The claimant occupied premises at 120 Fenchurch Street under a protected business tenancy. After an unopposed request for a new tenancy under section 26 of the Landlord and Tenant Act 1954, the county court ordered a 14-year tenancy containing a rolling redevelopment break clause exercisable after five years on 11 months’ notice.

Both parties appealed. The claimant later abandoned its appeal. Before the appeal was heard, the original proposed redevelopment transaction failed and the property was sold to Saxon Land BV. Fresh evidence was admitted concerning Saxon Land’s intentions and the possible redevelopment or sale of the property. The issues were whether the county court had applied the correct test and whether the fresh evidence made its order wrong.

1. First ground. The county court had applied the correct legal test. Under the approach in Adams v Green and JH Edwards & Sons Ltd v Central London Commercial Estates Ltd, the court must balance the need not to prevent or unreasonably delay redevelopment against the tenant’s reasonable security of tenure. The landlord is not automatically entitled to a break clause exercisable at its chosen date.
2. The judge was entitled to consider the only redevelopment scheme presented to him, namely the proposed island-site redevelopment. He was not required to construct an alternative case for the landlord. His selection of five years and 11 months’ notice was within the generous ambit of reasonable disagreement, although close to the boundary of his discretion. The first ground therefore failed.
3. Fresh evidence. Once post-trial evidence has been admitted because refusal would affront justice, the appellate court must consider it. This follows from Mulholland v Michell, Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co and the authorities concerning appeals under Part II of the Act. Whether the appeal is characterised as a review or rehearing, the question remains whether the original decision was wrong in light of the facts proved.
4. The evidence showed that Saxon Land’s primary objective was still assembly and redevelopment of the island site. A stand-alone redevelopment of 120 Fenchurch Street was theoretical rather than its real intention. Its fallback was sale to another developer within two to four years. The county court’s order would impede that fallback strategy, because a tenancy continuing until February 2010 would reduce the property’s saleability or value.
5. The tenant’s business interests also required protection. It was reasonable to provide approximately three and a half years’ guaranteed security. The order was varied so that the redevelopment break clause could be exercised on 11 months’ notice, with notice not to be served before 1 July 2007. The appeal was allowed to that extent.

1. Mayor’s and City of London County Court: HH Judge Cox ordered a 14-year new tenancy with a rolling redevelopment break clause exercisable after five years on 11 months’ notice.
2. High Court (Chancery Division): The claimant abandoned its appeal. The landlords’ appeal succeeded only in part. The break clause was varied to permit notice on or after 1 July 2007, while the 11-month notice period was maintained.