Landlord and tenant – Lease renewal – Terms – Claimant requesting new tenancy of commercial premises on termination of lease – Defendant landlord seeking to redevelop site – Court asked to determine outstanding terms of new lease – Whether lease should include redevelopment break clause – Whether proposed length of lease reasonable – Terms determined accordingly
The defendant landlord owned premises at 473 High Road, Willesden, North London. The claimant held a lease of the premises from which it traded as a retail store with attached garden centre. The lease expired in December 2020.
In May 2019, the defendant entered into negotiations with Aldi Stores Ltd (Aldi) for the grant of a conditional agreement for a lease under which Aldi would be obliged to carry out defined redevelopment works on behalf of the defendant.
The defendant, as landlord, sought to terminate the lease with the claimant under section 30(1)(f) of the Landlord and Tenant Act 1954, by serving a section 25 notice in May 2021.
However, it failed to appreciate, because of an error due to the coronavirus pandemic when staff were working at home, that, in January 2021, the claimant had served its own request under section 26 of the 1954 Act for a new tenancy and it was now out of time in opposing the grant of a new lease.
Many of the terms of the new lease were agreed but the court was asked to determine its length and whether the tenancy should contain a rolling break clause for redevelopment. That depended upon whether there was a “real possibility” that the defendant would obtain planning permission for its proposed development.
Held: The terms were determined accordingly.
(1) The duration of any new lease fell to be considered under section 33 of the 1954 Act whereas the inclusion of a break clause fell under section 35. Under section 33, in the absence of any agreement, the duration of the new tenancy was to be “such tenancy as may be determined by the court to be reasonable in all the circumstances”. There was a maximum term of 15 years in each case.
Under section 35, again in the absence of any agreement, any other terms of the new tenancy “may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all the relevant circumstances”. The court had a wide discretion.
(2) Where a landlord was unable to show that he was immediately in a position to effect a desired reconstruction of the land if there was a real possibility (as opposed to a probability) that the premises in question would be required for reconstruction during the continuance of the proposed new tenancy, it was right to include a break clause in the new tenancy which would enable such reconstruction to take place.
It was not the policy behind Part II of the 1954 Act to permit the rights of the tenant under the new tenancy to stand in the way of reconstruction and redevelopment of commercial property: National Car Parks Ltd v The Paternoster Consortium Ltd [1990] 1 EGLR 99 applied.
The court would only upset a landlord’s redevelopment ambitions if there was a major factor pointing the other way and, whilst a balancing exercise had to be undertaken, if anything, it was trumped (to a large extent) if a landlord wished to redevelop. It was no part of the policy of the 1954 Act to give security of tenure to a business tenant at the expense of preventing redevelopment: Adams v Green [1978] 2 ELGR 46 and O’May v City of London Real Property Co Ltd [1983] AC 726 considered.
A landlord should not be prevented from pursuing its redevelopment plan albeit that there were circumstances where a court could conclude that it would be reasonable in all the circumstances to delay the operation of a break clause drafted for that purpose: Becker v Hill Street Properties [1990] 2 EGLR 78 distinguished. Davy’s of London (Wine Merchants) Ltd v City of London Corporation [2004] EWHC 2224 (Ch), J H Edwards & Sons Ltd v Central London Commercial Estates Ltd [1984] 2 EGLR 103 and Amika Motors Ltd v Colebrook Holdings Ltd [1981] 2 EGLR 62 considered.
(3) The weight of authority was with the defendant as landlord, particularly in a case where there was no dispute that there was a genuine intention to carry out the works. Although the consequences of a break clause would act harshly on the claimant and they would inevitably suffer some financial loss, that was not an overriding consideration. The question for the court was whether there was a real prospect of success.
The claimant’s expert gave evidence that there was no real possibility of the local planning authority granting permission for the proposed works as they were contrary to local plan policies. However, the court preferred the evidence of the defendant’s expert which pointed to the practical limitations of those policies, which were largely inchoate. That was a sound and practical opinion and it would be wrong for the court to prejudge the outcome of the planning application.
There seemed no reason to prevent the proposed development and it would be appropriate for a landlord’s redevelopment break clause to be included in the renewed lease.
(4) The court had to consider the material circumstances prevailing in order to properly apply sections 33 and 35. The effect of an early break clause would act harshly in so far as the claimant was concerned. If the defendant was successful, its business would have to close.
However, if the new lease did not contain a break clause, there would be substantial prejudice to the defendant’s redevelopment plans with the potential that the advantageous terms of a lease with Aldi would be lost. That trumped the claimant’s position. There should, therefore, be a break clause allowing re-development operable immediately.
(5) Under section 33, the duration of the lease should be such tenancy as might be determined by the court as reasonable in all the circumstances.
Putting aside consideration of a break clause, it would be appropriate to grant a term that gave the claimant some security and an ability to onward plan but also gave the defendant some protection in relation to a reducing asset and the need to offset its liabilities by maintaining income from the premises. On the evidence, a term of five years was reasonable.
John de Waal KC and Adam Smith-Roberts (instructed by Jury O’Shea LLP) appeared for the claimant; Guy Fetherstonhaugh KC and Julia Petrenko (instructed by Stephenson Harwood LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of B & M Retail Ltd v HSBC Bank Pension Trust (UK) Ltd
