Is honesty the best policy?

In Inclusive Technology -v- Williamson the Court of Appeal provided Landlords with a reminder as to the cost of misrepresentations made within Lease renewal proceedings. 

The Landlord served a Notice on the Tenant under Section 25 of the Landlord & Tenant Act 1954 ("the Act") terminating the Tenant's existing tenancy and stating that it would oppose the grant of a new tenancy on ground f, being what is normally known as the "re-development" ground. 

When serving the Notice, the Landlord set out in a covering letter its intention to carry out refurbishment works therefore indicating its ability to satisfy ground f. As a result of the Notice and the covering letter the Tenant moved to other premises at a higher rent than it had been willing to pay for a renewal of the existing premises. End of story - not quite. 

The reality was that although the Landlord did have a genuine intention to refurbish the premises when the Notice and covering letter was sent in June 2006 by September 2006 it had decided that the cost of the works were too high and so put the works on hold.  There was still an intention to do the works, but only at some future point in time. 

The Landlord failed to inform the Tenant of its change of position and at the end of November 2006, as above, the Tenant signed up to its new Lease 

However when the Tenant found out that in fact the refurbishment works had not been undertaken it issued proceedings against the Landlord for loss suffered by it as a result of having to move premises. The Tenant relied on Section 37A (2) of the Act which provides that where the Tenant leaves premises because of a misrepresentation, or the concealment of material facts, the Court may order the Landlord to pay compensation to the Tenant. This is in addition to the compensation which the Landlord would ordinarily have to pay under Section 37 as a result of refusing a new tenancy on ground f. 

In this case the Court of Appeal found that the failure to inform the Tenant of the change of intention amounted to a misrepresentation.  It was found that the Landlord had a duty to confirm any change of intention to the Tenant on the basis that its original representation was a continuing one. 

The Court of Appeal made it clear that this would not be the case in relation to every Section 25 Notice served specifying ground f and in particular that this would not be the case where there was nothing further attached to the Section 25 Notice which set out the Landlord's intention (as was the case in Inclusive). 

The Court of Appeal found that the purpose of Section 37A (2) of the Act was to encourage fair dealing between Landlord and Tenant and that this would be open to abuse unless the Landlord acted responsibly and in good faith. 

On the basis that there had been either misrepresentation or concealment which had led the Tenant to give up possession, the Court of Appeal awarded compensation to the Tenant, based on the difference between the rent it was paying for its new premises and the rent that it had been prepared to pay for a new Lease of its old premises. 

Disclaimer - This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. It is intended only to highlight general issues or changes in the law which might be of interest to our clients and contacts.