UK landlord ordered to pay compensation for misrepresentation under LTA 1954

The case, McDonald’s Restaurants Ltd v Shirayama Shokusan Company Ltd, is one of the few decisions on compensation for misrepresentation under section 37A of the Landlord and Tenant Act 1954 (91 pages / 2.9 MB).  It also contains a useful consideration of other areas, such as what is required to demonstrate breach of an undertaking given to a Court and the common law so-called ‘tort of deceit’.

Jemma Castell, property disputes expert at Pinsent Masons, said: “The judgment shows the importance of landlords following through on the proposals which form the basis of their refusal under ground (g). Time will tell as to whether this judgement will have an impact on cases to follow where a landlord genuinely did have the intention to carry out its own business activities at the time of the lease renewal request, but then had an honest change of heart after the termination order had been granted by the court.”

The case centred around the evidence which had been given by a landlord, and others on behalf of the landlord during the preliminary trial of whether the landlord had sufficient intent to make a ground (g) opposition. This ground opposes the grant of any new tenancy to an existing tenant where a landlord intends to occupy the property itself to run a business upon termination of the lease to its current tenant.

Until 2019, a branch of fast-food restaurant McDonald’s was run from part of the ground floor and basement of the building under a lease which benefited from protection under the 1954 act. 

The landlord served a notice under section 25 of the act opposing the grant of any new tenancy due to plans to occupy the premises themselves (a ground (g) opposition).

The court in the preliminary trial found that the landlord had a ‘firm and settled intention’ of opening up a Japanese restaurant (Zen Bento) on the premises and a reasonable prospect of achieving this intention within a reasonable time following the termination of the lease. This was partially based on the landlord stating its intention, and giving evidence to this intention, to commence trading as Zen Bento as soon as practical after the tenants vacated as well as providing the court with an undertaking to do so.

When Zen Bento never opened, the former tenant sued for both deceit and for damages on the basis that the termination order was obtained by misrepresentation.

The court found that the landlord had, via the evidence given by its senior representative, deliberately misrepresented its intentions. Particular weight was given to the emails exchanged following the preliminary trial showing that the landlord did not have much of an idea as to what business it wanted to operate from the premises. Emails also showed that ‘key’ people connected to the Zen Bento restaurant, such as the proposed chef, chief executive and architect designing the restaurant, had departed suddenly following the termination order.

The court accordingly found that the termination order had been obtained by misrepresentation and the landlord had to pay compensation.

“This highlights the importance of landlords taking care regarding their correspondence when dealing with such issues and the inferences which can be drawn from the content of discussions regarding the future use of premises,” said Castell.

The landlord in this case had gone to great length to show the court that the Zen Bento project was capable of being achieved despite seemingly having not settled on any actual plan for how the premises was to be used as a restaurant should it regain occupation.

“It may lead to significantly more interest from tenants as to what happens to their former premises after a successful opposition to a request for a renewable lease along with an increase on challenges at a later date from tenants unhappy about being ousted,” said Castell.