Get the timing right: when relying on demolition for Ground F have you considered the Community Infrastructure Levy?

When proposing to develop a site occupied by a business tenant protected by the Landlord and Tenant Act 1954, (“the Act”), it is likely that a landlord will rely on ground (f) of section 30, Part II of the Act. This ground requires the landlord to demonstrate that it has a 'firm and settled' intention to demolish and/or substantially reconstruct/ redevelop the whole or a substantial part of the ‘holding’ - being that part of the premises which the tenant occupies for the purpose of its business.  

The landlord must prove, (as at the date of any hearing), that it has a reasonable prospect of achieving its aim and it intends to start work at, or within a reasonable time after, the end of the tenancy. What is a reasonable time will depend on the circumstances of each case however,  works commenced within three months of the end of the tenancy have been held to be sufficient.

To show a 'firm and settled' intention the landlord's plans do not have to be fully established. For example, it does not have to wait for full planning approval or have building contracts in place but, the more advanced the landlord's plans, the more likely it is to be successful in opposing a tenant's request for a new lease. 

If the works involve demolition it is often easier for a landlord to rely on the demolition aspect of ground (f) even where a reconstruction or redevelopment is planned as there is generally less to prove.  For example if planning/ prior approval is not required the landlord may simply need to pass any necessary company resolutions (to show a fixed intention to proceed), line up conditional contracts with contractors to demolish and produce evidence that it has the financial means to carry out the demolition (e.g. company accounts).

Consequently, in the past, the decision to carry out demolition works was a relatively simple and effective means of regaining possession.

In many projects this is likely to remain the case however if the premises are within a Community Infrastructure Levy ("CIL") charging area and the proposed development is likely to attract a CIL charge, the landlord will also need to consider the impact which a decision to demolish may have on its CIL liability. Because the area of the floor space of a building to be demolished may be used to reduce CIL liability payable on a development any decision to demolish before a planning permission has been granted should be carefully considered.

Depending on the size of the premises and/or the size of the development the reduction in CIL could be substantial. 

To reduce the CIL liability in this manner the building due to be demolished must have been in lawful use for a continuous period of at least six months within the period of 3 years ending on the day planning permission first permits the chargeable development. Unfortunately there is no legislative definition of the phrase 'in lawful use' however it has been held (R (Hourhope Ltd) v Shropshire Council [2015]). that it was not enough to show that the building had a use to which it could theoretically be put, the building actually had to be used for the purpose claimed.  

As a result it may be to the landlord's advantage to retain the building so that it can demonstrate a lawful use for the requisite period prior to redevelopment and thereby reduce its CIL liability. However, from a timing perspective, when it is key to ensure that vacant possession can be obtained at an early stage so that works are not delayed by needing to prove that reconstruction/redevelopment will be commenced within a reasonable time of the end of the tenancy, a decision may need to be made whether to proceed based on the demolition ground or to retain the buildings in order to reduce the CIL liability.

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